An evolution is underway across the electric utility industry, driven by new technologies that provide more data and information. These technologies not only enable better performance of the electricity distribution system but can also give customers new choices and more control over their energy use.
Such technologies, with identifiable costs but uncertain future benefits, are causing a shift in the regulatory review process, where regulators are looking for more details and adopting new requirements for utility investment applications. One technology that characterizes the evolution taking place is advanced metering infrastructure (AMI). AMI, like other grid modernization investments, offers multiple value streams. Achieving value and realizing benefits from those investments by both utilities and customers depends on how the technology is implemented and used. A look back at AMI utility investment application reviews offers a lens into how the regulatory process is evolving in the face of new technologies, driving new expectations and requirements, and how those efforts are resulting in new types of proposal processes.
A modern electric grid that provides safe, reliable electricity is the backbone for a vibrant economy. The U.S. Department of Energy (DOE) understands the role that AMI and other technologies can play in enabling a modern, customer-centric grid that allows utilities, customers, and other companies to respond to changing customer and societal preferences. It also understands deploying technology with new capabilities and functionalities that allows for new products and services to customers can carry significant costs. Prudent review and implementation of these investments are critical.
The DOE's Voices of Experience Initiative: Leveraging AMI Networks and Data captures the value that utilities have achieved with AMI. However, AMI investments have seen mixed results from state commissions. Some regulators and advocates have expressed doubts about an investment's benefits, given its significant cost, while others see AMI as foundational for the future grid. In an attempt to understand what was taking place and to determine if more information or data was needed, the DOE's Advanced Grid Research (AGR) division funded a phased research study to investigate how states, utilities, and stakeholders are developing and evaluating these investments.
AMI in Review: Informing the Conversation compiles information from an analysis of more than 100 AMI public filings and draws on conversations with nearly 125 individuals from almost 50 entities around the country. It represents utilities, state regulators, consumer advocates, and other stakeholders to obtain a better understanding of the perspectives and rationale that might not be captured in the record. The study attempts to provide a neutral perspective that informs new and experienced practitioners about the vast and complicated questions surrounding an AMI regulatory review.
Several key takeaways emerged from the study. Regulators and other stakeholders are looking for a more comprehensive, detailed business case that includes the role AMI will play in a utility's future vision. They also want to see value streams beyond those needed to make the initial business case, enabling customers to make more informed choices. They want to understand how a utility will use the technology — now and in the future — and they want a voice in prioritizing and shaping the benefits the utility will pursue. With all this, they want customers and customer-focused opportunities at the forefront rather than focusing on utility operational benefits first.
Developing the record
Utilities have various avenues for requesting recovery. Analysis of public filings found that AMI investments have been proposed in different utility application types and no one way is the 'silver bullet' for approval. Regardless of a commission's view of a technology's benefits, issuing a decision requires a detailed record that includes sufficient justification (or evidence).
Conversations uncovered that these new technologies are changing the type of information and the level of detail commissions and stakeholders need. They are asking for more or different details than might be necessary for more traditional investments. Whether a utility proposes AMI in a rate case or as part of a full grid modernization proposal, fully describing AMI's role in a utility's vision for the future and providing details on future programs or new systems that might be needed can help to develop the record commissions need to issue an approval.
Changing regulatory and stakeholder expectations
While articulating the vision might at first glance seem simple, it isn't necessarily as easy or straightforward. Questions arise when trying to determine the right balance of what to include or what the right approach might be: will laying out the entire vision inspire confidence or will the costs be too daunting?
In fact, AMI and other grid modernization technologies are changing expectations about the level of detail to include in a proposal and creating new expectations for how parties interact and exchange information. Rather than being spectators who listen and evaluate the final plan, parties increasingly want a voice in the programs and value streams a utility might pursue. This is leading to a growing importance of stakeholder collaboration.
While no two state procedures are identical, stakeholder processes that are transparent, collaborative, and allow for a two-way dialog can provide an opportunity for parties to discuss the technology, its costs and benefits, potential programs that will be built off of the investment, and how AMI fits within the larger context of utility operations. Transparent dialog allows an opportunity for stakeholders to provide input and for utilities to hear which benefits are important to customers. It can help to build trust and alleviate concerns. However, it does not negate the need for a fully-developed record.
Expanded view of value
AMI touches a customer in ways that other traditional utility investments do not. This is driving a more consumer-centric focus, where value is not only evaluated on a utility's ability to provide safe, affordable, and reliable electricity but also on its broader value to provide customers with better opportunities to use their information in ways that directly benefit them, even if that includes working with third parties. Indeed, AMI's capabilities and data provide opportunities for a utility to offer new programs and services to other market participants as well. This characteristic is adding an unusual element to the regulatory review process and expanding the commissions' and advocates' views of value. Regulators want to understand not only the value that can be achieved through utility programs but also how consumer or market access to the data provides value more broadly.
The capability of AMI to enable and improve interrelated technologies and grid investments is a key part of the AMI business case. Numerous value streams emerge when advanced meters are paired with in-home devices such as smart thermostats and hot water heaters — time-varying rates, web interfaces, advanced distribution management systems, voltage optimization, customer information systems, and a suite of other distribution and energy efficiency programs. AMI-enabled programs can enhance the capability (and value) of AMI technology to realize demand reduction and customer savings.
2021 and beyond
The treatment of AMI technology serves as an early indicator of how the review process is changing. The role of a commission is changing, too, as regulators are faced with complex technological considerations in addition to growing customer expectations. Commissioners and advocacy groups alike believe that the energy sector will continue to transition to a more distributed energy and consumer-centric system.
"Foundational" investments for the evolving grid, like AMI, present unique scenarios where stakeholders must consider multiple use cases, related products and services, and long payoff periods. Commissions must have a record on which it can issue a decision. The lack of a record, which includes insufficient justification or evidence, can result in a commission rejecting an application that it might well have supported. Fully describing how AMI is a foundation investment, detailing the programs, services, and benefits that AMI can provide will go a long way in providing the necessary record upon which a commission can issue an order.
It is likely that utilities will continue to face increasing levels of scrutiny from regulators as competing programs and priorities fight for ratepayer dollars. As utilities wrestle with the economic fallout from the COVID-19 pandemic and the impact of Western wildfires, grid-facing investment proceedings will continue to evolve. AMI offers insights into how future utility proposals for these next-generation technologies will be reviewed and evaluated. AMI In Review: Informing the Conversation can serve as an important resource to help parties understand the complexities of grid-facing proceedings.