quantifying costs and benefits of ami philip q hanser, and sanem sergici

Antitrust/Competition Commercial Damages Environmental Litigation and Regulation Forensic Economics Intellectual Property International Arbitration International Trade Product Liability Regulatory Finance and Accounting Risk Management Securities Tax Utility Regulatory Policy and Ratemaking Valuation Electric Power Financial Institutions Natural Gas Petroleum Pharmaceuticals, Medical Devices, and Biotechnology Telecommunications and Media Transportation

Copyright © 2012 The Brattle Group, Inc. www.brattle.com

Quantifying Costs and Benefits of AMI

Philip Q Hanser, and Sanem Sergici

DPU Grid Modernization Steering Committee MeetingBoston, Massachusetts

December 17, 2012

The views expressed in this presentation are strictly those of the authors and do not necessarily state or reflect the views of The Brattle Group, Inc.

2DPU Grid Modernization Steering Committee Meeting #1

The Brattle Group utilizes the iGrid model to quantify costs and benefits of AMI

iGrid is an Excel based model that allows both benefits and costs of various AMI-enabled programs to be evaluated

The iGrid model measures three main categories of net benefits enabled by AMI♦Demand Response (DR)♦Energy efficiency (EE)♦Plug-in electric vehicles (PEV)

In each category, we quantify the net benefits arising from avoided capacity costs, avoided energy costs, avoided carbon costs, and avoided gasoline costs

iGrid was used recently to quantify the net societal benefits of AMI in Ameren’s service area in Illinois and has been used for assessing net benefits in other states such as Colorado


Benefits Modeled in iGrid

Avoided metering costs Value of outage avoidance Remote connection and disconnection of service Avoided generation capacity costs Avoided transmission and distribution capacity costs Avoided energy costs Avoided carbon dioxide costs Avoided gasoline costs


Costs Modeled in iGrid

AMI costs Enabling technologies (IHD, PCT, DLC, and HEMS) Installation costs for AMI and enabling technologies Electric vehicle premium


How does iGrid work?

Step 1- AMI is rolled out with a representative portfolio of programs

Step 2- Assumptions are made about AMI deployment rates, likely customer participation rates, likely impact on peak demand and energy consumption per customer

Step 3- Calculate aggregate impacts as the product of customer participation rates and per customer peak and energy impacts

Step 4- Calculate benefits by estimating the avoided costs created by changes in load shapes

Step 5- Calculate the costs associated with AMI installation as well as enabling technology purchases


In a recent IEE report, we presented a framework forquantifying the costs and benefits of smart meters across a range of electric utility and customer types

Introduced utility “prototypes” to support range of utility adoption patterns and timing variations

Customer engagement framework includes consumer segmentation and gradual technology adoption over 20 year horizon

Clear model for quantifying operational and consumer-driven costs and benefits

♦ Results show AMI benefits exceed costs under variety of conservative assumptions

♦ But, goal is not just “break even”—consumer benefits could be much greater


Four utility prototypes included in study

Pioneer Committed Exploratory CautiousCurrent meter AMR Operational AMI in process All analog All analogDirect load control DLC 1.0 ( < 1%

customers)DLC 1.0 ( < 1%



customers)Generation profile T&D only, all

generation purchased

(nuclear, gas, hydro)

Mix of generation owned by utility and

purchased (hydro, gas, nuclear)

Bulk of generation owned by utility

(gas, nuclear, coal)

Bulk of generation

owned by utility (coal, nuclear,

gas)Regulatory environment

Approved to proceed Mandates for SG/RPS

Approved to proceed Conservative

Climate change attitude Problem Serious Problem Problem SkepticismRegional climate Moderate cold-hot Fairly temperate Extreme cold-hot Temperate-hotEmphasis on efficiency and conservation High High Low Low


Customer segments have varying degrees of environmental and price sensitivity


Customer segments choose engagement pathwaysand make technology choices accordingly


Customer mix across utility prototypes varies


Pioneer Utility – Components of costs and benefits (NPV, $ millions)

-$198 M

LegendTechnology CostsAMI Installation Remote (Dis)Connect Outage Avoidance Avoided Metering CostsActive Set and ForgetUtility AutomationEnergy Partner

$0

$77 M

Net Benefits$29 M

$150 M

Costs Operational Savings

Consumer-Driven Savings


Committed Utility – Components of costs and benefits (NPV, $ millions)

-$272 M

$0

$153 M

Net Benefits$21 M

$140 M





Exploratory Utility – Components of costs and benefits (NPV, $ millions)

-$223 M

$0

$156M

Net Benefits$64M

$131 M





Cautious Utility – Components of costs and benefits (NPV, $ millions)

-$258 M

$0

$208M

Net Benefits$50M

$100 M





Conclusions

Net benefits are positive for each utility, indicating smart meters make economic sense

Consumer-driven benefits could be much greater with more investment in and focus on customer education

Over 20 year horizon, most customer migrate from “passive” engagement in energy management to more active strategies

Program choices based on personal preferences combined with consumer education could yield tremendous benefits

EVs have high impact on benefits♦ demonstrated by contribution of “Energy Partners” to overall consumer-

driven savings despite very small percentage of customers in this group (about 1%)


Speaker Bio and Contact Information

The views expressed in this presentation are strictly those of the presenter(s) and do not necessarily state or reflect the views of The Brattle Group, Inc.


Philip Q HanserPrincipalCambridge, [email protected]: (617) 864-7900Fax: (617) 864-1576

Mr. Hanser assists clients in issues ranging from utility industry structure and market power and associated regulatory questions, to specific operational and strategic issues, such as transmission pricing, generation planning, and tariff strategies. He also has expertise in fuels procurement, environmental issues, forecasting, marketing and demand-side management, and other complex management and financial matters. Over his thirty years in the industry, Mr. Hanser has appeared as an expert witness before the Federal Energy Regulatory Commission (FERC), many U.S. and Canadian public utility and siting commissions, before arbitration panels, and in federal and state courts. He served six years on the American Statistical Association’s Advisory Committee to the Energy Information Administration (EIA). Prior to joining The Brattle Group, Mr. Hanser held teaching positions at the University of the Pacific, University of California at Davis, and Columbia University, and served as a guest lecturer at the Massachusetts Institute of Technology, Stanford University, and the University of Chicago. He is currently a Senior Associate, Mossavar-Rahmani Center for Business and Government, Harvard Kennedy School. He has also served as the manager of the Demand-Side Management Program at the Electric Power Research Institute (EPRI). He has been published widely in leading industry and economic journals.

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The views expressed in this presentation are strictly those of the presenter(s) and do not necessarily state or reflect the views of The Brattle Group, Inc.


Sanem SergiciSenior AssociateCambridge, [email protected]: (617) 864-7900Fax: (617) 864-1576

Dr. Sanem Sergici is a Senior Associate in The Brattle Group’s Cambridge, MA office with expertise in electricity markets, applied econometrics, and industrial organization. At Brattle, the focus of Dr. Sergici’s work has been on assisting electric utilities, regulators, and wholesale market operators in their strategic questions related to energy efficiency, demand response, and customer behavior in the context of Smart Grid. Dr. Sergici has significant expertise in the design and evaluation of dynamic pricing pilot programs; development of load forecasting models; ratemaking for electric utilities; and energy litigation. Her most recent engagements include assisting the utilities in Michigan, Connecticut, Illinois and Maryland in the design and impact evaluation of their pricing and technology pilots. She has spoken at several industry conferences and published in several industry journals.

Dr. Sergici received her Ph.D. in Applied Economics from Northeastern University in the fields of applied econometrics and industrial organization. Her Ph.D. dissertation investigated three important aspects of U.S. electricity restructuring, namely divestures of generation, ISO/RTO formation, and the utility merger wave. She received her M.A. in Economics from Northeastern University, and B.S. in Economics from Middle East Technical University (METU), Ankara, Turkey.

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Functional Practice Areas

♦ Antitrust/Competition♦ Commercial Damages♦ Environmental Litigation and Regulation♦ Forensic Economics♦ Intellectual Property♦ International Arbitration♦ International Trade♦ Product Liability♦ Regulatory Finance and Accounting♦ Risk Management♦ Securities♦ Tax♦ Utility Regulatory Policy and Ratemaking♦ Valuation

Industry Practice Areas

♦ Electric Power♦ Financial Institutions♦ Natural Gas♦ Petroleum♦ Pharmaceuticals, Medical

Devices, and Biotechnology♦ Telecommunications and Media♦ Transportation

The Brattle Group- Areas of Expertise


Contact Us

North America

Cambridge, MA+1.617.864.7900

San Francisco, CA+1.415.217.1000

Washington, DC+1.202.955.5050

Europe

Brussels, Belgium+32.2.234.77.05

London, England+44.20.7406.7900

Madrid, Spain+34.91.418.69.70

www.brattle.com


Appendix


Operational Benefits

Avoided metering costs: This is broken into fixed and variable avoided costs. In all years smart meters are installed the fixed cost is calculated as the assumed avoided cost times the fraction of fixed avoided metering cost eliminated by smart meters. The variable cost is calculated as the number of smart meters installed times the variable avoided metering costs times the fraction of variable cost eliminated by smart meters;

Value of outage avoidance: the total benefit is calculated as the value of lost load times the kWh outages avoided by smart meters;

Remote connection and disconnection of service: This is calculated as the number of (dis)connections per year times the avoided cost per (dis)connection due to smart meters times the fraction of (dis)connection costs that are avoided due to smart meters


Other Benefits

Avoided generation capacity costs: This is calculated as the change in peak demand times the avoided cost of generation capacity, and then scaled due to system line losses and reserve margin

Avoided transmission and distribution capacity costs: This is calculated as the change in peak demand times the avoided cost of transmission and distribution, and then scaled due to system line losses and reserve margin

Avoided energy costs: This is calculated as the change in energy in each time period (offpeak, peak, and critical peak) times the cost of energy in the respective time period, and then scaled due to system line losses


Other Benefits- II

Avoided carbon dioxide costs: This is calculated as the change in energy use in each time period (off-peak, peak, and critical peak) times the carbon dioxide emissions rate in the respective time period times the value of each ton of carbon dioxide emissions. The emissions rate for each utility differs based on the assumed fuel mix

Avoided gasoline costs: This is calculated as the change in gallons of gasoline consumed times the price of gasoline. This benefit is only applicable to the customers with electric vehicles

quantifying costs and benefits of ami philip q hanser, and sanem sergici

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