The Opt-out Challenge

by Jeff Evans, Black & Veatch

Consumers have been realizing the benefits of automatic meter reading (AMR) and advanced metering infrastructure (AMI) systems for nearly two decades. Conservative industry estimates place the number of enabled meters installed in the United States at greater than 50 million. Yet, for all of the history associated with AMR and AMI, utilities are encountering significant resistance to AMI and smart meter projects. This resistance has caught the ear of regulators who are requiring smart meter opt-out provisions.

Consumer resistance centers on issues related to safety, security and privacy concerns or the combination of the three and affects utilities that are planning and those that have deployed smart meter programs. Significant research and studies document that smart meter radio frequency (RF) transmissions present no harm to health or the environment, yet consumers voice this is as a key concern. Utilities are implementing physical security and cybersecurity programs to combat the threat of nefarious actions against the smart grid. Utility privacy policies-backed by state laws and regulatory orders-mandate that utilities protect customer privacy. So why are some customers fighting the smart grid so vigorously?

Rise of Consumer Resistance

In the past, AMR deployments were completed with little publicity. Consumers often were unaware that RF-transmitting meters had been installed at their homes. Now utilities are enabling and encouraging consumers to take ownership of their usage. Smart meters have become more top of mind because utilities recognize the benefits of implementing smart metering systems: from improving customer satisfaction and enabling operational efficiency to reducing the cost of energy to improving energy efficiency. Communicating these benefits to consumers has increased awareness of smart meter implementations.

The influx of smart grid and smart meter deployments also is raising awareness with consumers. The American Reinvestment and Recovery Act (ARRA) made $3.4 billion available to utilities for smart meter implementation. The ARRA funding, however, only covered a portion of utilities' programs, and utilities are seeking recovery of the nonreimbursed portion of smart meters' costs through rate cases with their respective regulators. This has resulted in widespread perception that smart grid equals higher rates, overshadowing the long-term benefits the infrastructure will provide.

Smart grid infrastructure is not well-understood outside the industry. A lack of consumer knowledge has created tremendous opportunities for a small, yet powerful contingent to spread misconceptions and fear. Social media has made it easier for people to advocate beliefs to the masses. While messages are not always substantiated by fact, publication provides credence. This is especially demonstrated in growing public concern about public health and privacy related to smart grid deployments.

Chief among public health concerns is the belief that RF emissions from wireless smart meter implementations are harmful to human health. This concern is scientifically unfounded and has been addressed by independent analyses and publications (see Figure 1).

RF Health Concern Analyses

The magnitude of and permissible exposures associated with RF emissions are limited by the Federal Communications Commission (FCC). FCC limits are based on scientific studies and facts. Actual RF emissions from smart meter implementations that have been studied are within permissible exposure levels. RF emissions from smart meter systems are significantly less than those from common devices such as cordless phones, microwave ovens and the natural RF emissions from the planet Earth. Smart meter RF emissions are even less than what you are exposed to from a person who is standing next to you (see Figure 2).

comparison of RF Exposure Sources to Smart Meters

As seen in several utility commission proceedings, protection of personal information from cyberthreat or from being sold to a third party is also a primary concern for consumers. Customers want assurance that data provided to utilities will be protected from cyberthreats and won't be provided to a third party without their consent.

Utilities already have privacy policies in place that establish methods for the handling and protection of personal customer data. Such policies also protect the interval usage information collected from a meter and require permission from a customer before releasing usage data to a third party. Many of these policies are mandated via statute or edict by the responsible oversight agencies and apply to smart meter sytems.

Customer privacy is further protected based on the scope of data collected at the premise. Smart meters measure whole-house usage information that occurs over time; they do not measure consumption patterns of specific appliances within homes. Without specific, detailed information about customer appliances and customer habits, utilities cannot decipher whole-house usage into individual appliance profiles.

Some utility smart meter programs enable home-area networks (HANs). A HAN lets a consumer monitor and control usage within his or her home and is evolving to include the ability to control appliances such as refrigerators and washers and dryers. This evolution drives further consumer concerns about communication of information about personal habits. Utility privacy policies are intended to prohibit capture of HAN data without customers' permission.

Regulators React

As a result of growing consumer concerns, there is a growing surge of state and local agencies that require utilities to offer opt-out options to customers who refuse to receive AMI meters. Figure 3 highlights state regulatory activity and resulting utility opt-out programs.

While not under the jurisdiction of state regulatory authorities, the cities of Naperville, Ill., and Fort Collins, Colo., are under pressure to consider opt-out alternatives. Naperville, which allows customers to opt out of smart meters for a one-time charge of $68 and monthly charge of $25, recently rejected the inclusion of a nonbinding referendum during a future election for the rejection of smart meters. Fort Collins is planning to allow for two opt-out alternatives: analog meters and daily register read-only AMI meters. Charges associated with each option have not been determined.

Impacts to Customers

The costs to implement opt-out options are significant and could be incurred by all ratepayers. As the opt-out population increases, the anticipated savings from smart meter programs decreases, again resulting in potentially higher rates for customers. In addition, benefits of smart meters associated with reliability and outage response also are compromised with opt-out participation.

Operational cost reductions, such as meter-reading costs and truck rolls, decrease as the population of opt-out customers increases. For each meter that opts out, a utility labor force must be retained and paid for to facilitate the collections process. In addition, the meter-reading solutions, applications, system integration and operations must be maintained for the few nonautomated meters. Opt-out fees paid by the individual consumers, such as those highlighted in the Maine and Oregon programs, are intended to cover these additional costs.

Results in Maine and Oregon indicate few customers will participate when faced with the costs associated with opt-out programs. This also presents an additional challenge to the utility: If the number of customers who opt out is too low, the cost per customer increases significantly. As a result, utilities would need to recover noncovered opt-out costs from their entire rate bases during their next general rate cases.

Take the Initiative

As demonstrated in the California, Nevada and Naperville proceedings, a small percentage of the consumer population can influence the majority negatively and force regulators to implement opt-out provisions. Short of directly challenging their customers and regulators, utilities should consider steps to reduce the desire for opt out within their customer bases.

Demonstrate Opt-out Impacts in Business Case

As evidenced by the commission proceedings in Maine, Oregon and California and by the leanings of commission proceedings in Nevada and Michigan, it is prudent for utilities to include the potential cost of postponement, opt out or both in their smart meter business cases. Smart meter business cases assume the elimination of meter-reading positions and associated infrastructure (handhelds and meter-reading systems).

All facets of opt-out provisions should be considered and accounted for in business cases. For example, one opt-out option requires that analog meters be available for customers who do not want smart meters. American National Standards Institute (ANSI)-certified analog meters are no longer made in North America. Utilities, vendors and the marketplace have long since determined that analog meters represent obsolete technology and have been replaced by solid-state meters. To enable an analog opt-out option, a refurbished analog meter must be used.

This adds significant new testing and meter asset management efforts and costs on utility operations.

Several regulatory agencies have implemented postponement policies while investigating potential opt-out provisions. Implementing a postponement list allows consumers to delay installation of a smart meter at their premises. Postponing gives utilities the opportunity to educate customers about the benefits associated with smart meters and allows them to address customer concerns. Postponing is not efficient to a smart meter deployment as utilities realize economies of scale by deploying all meters on a route at once. Skipping a meter requires a return visit to a premise and an incremental cost. Postponing, however, is preferable to opting out.

Educate Your Customers

Implementing any complex solution that noticeably impacts customers always creates consternation. Smart metering is a complex solution that most consumers don't fully understand.

Utilities should communicate with customers and stakeholders via multiple channels with the intent of educating. Educating your customers can alleviate misperceptions and diminish the fear that fuels resistance to smart grid programs.

Utilities should use their communications channels to provide facts and reduce concern about common issues. Several states and regulatory bodies have studied smart metering and made study results available. Make copies of independent studies and resource materials available via email, the Web or public outreach events.

Communicate utility policy about handling customer-specific information. Tell consumers how the smart grid will be secured. An appropriate level of detail can be communicated to consumers without revealing information that will place security at risk. Let your consumers know that meter transmissions are encrypted, network infrastructure and data centers are hardened, employee actions are managed and systems are monitored.

Utilities are implementing comprehensive cybersecurity plans and continually are evolving security infrastructure and practice to protect against evolving threats. Make consumers aware that your organization takes security seriously.

Finally, tell consumers when they can expect their new meters and what will happen during installation. Inform consumers of the capabilities they will have as a result of the smart meter program. Let them know how they can manage their energy consumption and lower their utility bills.

Consumers today have greater awareness of utility operations and smart meter deployment plans. But increased awareness does not necessarily mean increased knowledge about the infrastructure. A lack of information provides a breeding ground for rumor, speculation and misconception.

Utilities must prepare by developing well-thought out business plans that outline smart meter benefits and the true costs associated with potential opt-out plans.

In addition, utilities must prepare, plan and implement comprehensive communication and educational outreach efforts. With thorough preparation, utilities can overcome customer resistance and potential challenges related to opt-out programs.


Author

Jeff Evans is an executive consultant at Black & Veatch. He has 20 years of experience in the utility industry with a primary focus on smart grid and AMI solutions. He has a bachelor's degree in mechanical engineering and an MBA in marketing and management and strategy. Reach him at evansj2@bv.com.

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