Smart Meters, Cost Recovery, and
Risk Bearing
News Analysis of Three Case Studies
No single way of recovering costs
Source: Rob Wilhite, KEMA
3 different programs, 3 different outcomes
 
Xcel’s SmartGridCity in Boulder, CO
 
 
 
Baltimore Gas and Electric
 
 
 
$44.8 million (about three times initial cost estimate)
“Research project;” Mostly AMI
$835 million program, $200 million in ARRA funding
Almost solely an AMI project
Oklahoma Gas and Electric
 
 
$366.4 million program, $130 million in ARRA funding
AMI and distribution automation
Xcel’s SmartGridCity - 1
 
Considered it an R&D project, planned and implemented
out of normal budgeting process
 
 
 
Didn’t initially apply for a CPCN in 2008
Didn’t conduct a formal cost-benefit analysis
Costs inflate from $15.3 million to $44.8 million
 
 
 
Higher costs of permits
Tree trimming
Drilling for fiber optic lines
Xcel’s SmartGridCity - 2
 
Xcel asks Colorado PUC to recover costs through rate
increase
 
 
 
Colorado PUC allowed $11 million of recent rate increase to
go toward SmartGridCity
Required Xcel to apply for a CPCN to recover more of the
costs
Xcel reaches agreement with PUC staff and Governor’s
Energy Office
 
 
Xcel would recover $44.5 million through rate base
Office of Consumer Counsel will contest agreement
Baltimore Gas and Electric
 
Maryland PSC denied initial plan in June
 
 
 
Rejected upfront surcharge as too risky
Rejected mandatory TOU plan as lacking a significant consumer
education plan
PSC approves resubmitted plan in August
 
BG&E not allowed to recover through rate base until at least
2014
 
If approved, estimated cost to customers would be $1.10 a month on
average over 10 years
Oklahoma Gas and Electric
 
Oklahoma Corporation Commission approves OG&E’s
$366 million smart meter deployment and distribution
upgrades
 
 
 
Follows successful test pilot of 42,000 meters in Norman
“In my 20-plus years on the commission, I have seldom seen
such support for a utility matter. This is obviously a win-win
for all concerned.” – Commission Chairman Bob Anthony
One commissioner wanted to approve project in stages
 
Wanted OG&E to demonstrate success in each stage
What went wrong, what went right
 
What initially worked against Xcel
 
Didn’t go through traditional budget and regulation process
 
 
 
Unforeseen costs
What initially worked against BG&E
 
Regulators didn’t see benefits to consumers as clear-cut
 
 
 
Deemed it a research project
Didn’t want ratepayers to bear the risk until after project was
implemented and deemed a “prudent” investment
Concerns over mandatory TOU and plan for education
What worked in OG&E’s favor
 
 
 
$1.57/month surcharge offset by a $10/month reduction in fuel costs
Not just meters: also implementing distribution automation
Successful pilot test in Norman
Takeaways from the case studies
 
 
No definitive outcome for cost recovery mechanism
Consumer benefits must be better articulated
 
 
 
Engage regulators early
 
 
Being up front about estimated costs and benefits can create a
cost recovery structure that hedges against cost overruns
Small successes can lead to bigger approvals
 
 
Utilities becoming less able to approve these based on
operational benefits alone
Some regulators view benefits riskier than others
But, can be tough to start small if receiving federal funding
Regulators are worried about mandatory TOU
 
Especially given today’s economic conditions