11.5 Metering and Communication Systems Structural Alternatives
Two main themes of Chapter 11 are: 1) that information flows of various kinds are essential to the success of a competitive electric services marketplace, and 2) that different parties have different needs for and concerns about information flows, not all of which appear fully compatible.
Historically utilities have controlled the metering function, including retrieval of data from the meter and the ultimate processing of the data to render a bill for the customer. In the great majority of cases the utility has also owned and operated all equipment used in these related activities. In a few instances the utility has contracted out one or more of these activities, but has continued to exercise control over them.[1] Subsection 11.5.1 will review the distinctions among ownership, control and performance of the work. Subsection 11.5.2 will review structural alternatives for metering and communication systems activities.
CPUC D.95-12-063 can be interpreted to say that all of these component services remain the exclusive role of the UDC, unless and until the CPUC makes other decisions in the unbundling/rate design aspects of restructuring.[2]
This section addresses important policy questions which the CPUC must resolve relatively soon, including questions about the role of the UDC versus other potential providers of metering and communication system services. While these issues appear to have been formally assigned to the Ratesetting Working Group, their impact on the implementation of direct access require that they be addressed in this report. This is a specific example of the general phenomenon of substantial interdependency among the various working groups' assigned topics, discussed with the CPUC at scoping workshops and checkpoint meetings. There is need for the CPUC to have a decision-making process that weaves together input from various forums in its next level of more detailed restructuring decisions.
Further, some of the options discussed in section 11.5.2 could not be implemented immediately; thus, this discussion should be understood in the context of a multi-year time frame, with the UDC playing a transition role even in those options where ultimately the UDC is no longer the exclusive provider of these services.
11.5.1 Distinguishing Among Ownership, Control, and Performance of Work for Metering and Communication Systems
Ownership, Control, and Performance of Work are different dimensions connected to the provision of metering and communication systems enabling Direct Access. This section reviews the differences between them, and identifies the major dimensions of concern for the policy decisions that the CPUC must make in the coming months.
11.5.1.1 Ownership
In D.95-12-063, the Commission states that, "All customers will be individually responsible for the cost of the meter installation, and can opt to pay for it on their bill in reasonable installments that avoid severe bill impacts or hardships." The decision further suggests that a customer may purchase a real time meter to advance his access to virtual direct access. It is important, however, to define the term meter or metering. We are interpreting it to mean the real-time meter, the installation of the meter, and the infrastructure and supporting systems that enable the collection, storage, retrieval, and delivery of metering information.
Under the restructuring of the industry proposed by the CPUC, the possibility is raised that new parties could eventually be involved in the ownership of various elements of the metering and communication systems that will be developed to replace the current equipment. Whether the customer, specialized operators of various items of equipment, or others will want to own this equipment is an economic question dependent in part on the results of the Ratesetting working group and in part on the likelihood that the parties making the investments, whether regulated by the CPUC or not, need to see a high probability of recovering their investment and a reasonable rate of return on it. While it may be feasible for various parties to own one or more components of the metering/communication system from a logistical standpoint,, the financial feasibility has yet to be determined..
While it may not always be to one's best interest to actually own a particular thing, the right -the option-- to own the things we need to live is thought by some to be central to our understanding of a free society. Individuals own outright such exceptional things as office buildings, aircraft, and even public utilities. The urge to decide, however efficiently, for others what they do or do not need to own is dangerous, and should be resisted unless the actual private ownership, per se, of such a good is incompatible with its public function. Electric Distribution Systems, because they alone, in any one service territory, convey a poorly-substitutable public necessity, must be owned by appropriate legal entities, lest one private party act unilaterally to the substantial injury of his neighbor. It may be more appropriate for customers to own -or at least have the right to own-- any equipment which serves only their own premises, especially if the management of that equipment, implied by ownership, is unlikely to pose a risk to the public at large.
11.5.1.1.1 Alternative 1: Customer Ownership
End-use customers shall have the option to decide if they want to own their meters and control the meter data, or select a company to provide that service, or allow their UDC to provide all metering functions. Customers who are not satisfied with the value of services from their vendor should be allowed to shop the market for a competitive meter with the "value added" features desired or return to their UDC. The customer needs to rely on regulated safeguards to assure that meter certification and minimum manufacture standards are established and enforced and that meter data conforms to universal standards for format and availability. No other restraints need occur. At this critical time, the CPUC should not close the option for customers to own their meters or to control their electricity usage data. To assume that only the utility monopoly is capable of satisfying customer meter needs appears to be totally inconsistent with the fundamental principles of Direct Access.
If one assumes that the elemental connection to .electric service is provided primarily, not to any residential or non-residential tenant of real property, but to the owner, the implications for a tenant to elect Direct Access are unclear. Tenants, of course, enjoy certain rights in billing if they are the customer of record and charged for the service they use. But owners exercise reasonable control over the nature of that electric service, even including the decision whether they or their tenants are to be the electric service customer. Property rights at a premise tend to determine control over goods and services appurtenant to the premises, regardless of whether those appurtenant facilities are owned or not.
Pros: Customer Ownership has the following advantages:
1) The customer's right to select, own and control meters and meter information is fundamental to Direct Access.
2) Improvements in meter technology will advance at a greater pace and to higher levels if the meter industry must respond to millions of customers rather than a few UDC's
Cons: Customer Ownership has the following disadvantages:
1) In general, customers are not knowledgeable in the sophisticated, technological aspects of metering equipment and, therefore, may make poor decisions.
2) UDC's are in the best position to provide large volume of metering equipment and can bargain for superior price and value.
3) If ownership is a requirements, some customers may never take advantage of Direct Access
4) Because the meter is a component of the UDC's distribution system, the acts of one private party could result in substantial injury, damage or inconvenience to his neighbor
5) The existence of energy theft suggests that it may be inappropriate to allow customers free rein in the metering arena.
11.5.1.1.2 Alternative 2: UDC Ownership
Discussions of non-UDC ownership inevitably focus on the meter, which historically has been the connection for usage measurement. The utility has traditionally carried a substantial investment in the meters installed in the field and those carried in the associated meter shop inventory in authorized rate base. The ongoing costs of personnel and other expenses were recovered as costs as an element of necessary revenue requirements. In a few instances the utility has contracted out metering and data collection. This may result in a shift of the mix of investment and expenses toward expenses, but only in situations where the utility elects to divest itself of all meters. In the restructured environment, the utility will retain its role as the meter owner and supplier for all non-direct access customers.
For direct access customers, the UDC recognizes that customers electing direct access (physical or virtual) will be responsible for bearing the cost of the meter, which they can do through the UDC or via their own sources. The UDC, as it does today, will continue to stock a variety of meters to meet customer specific needs, but is fundamentally less interested in who owns the meter than it is interested in maintaining control of the end-point of its distribution system
What is typically forgotten in Direct Access discussions of who should pay is the communications system required to collect and deliver hourly information to all of the parties which require it. Evaluation of the technical alternatives in Section 11.4 indicate that there are a number of options which could provide other service benefits to all distribution customers, regardless of their direct access preference, using the infrastructure installed. To the extent that UDC ownership of the communications system(s) would result in improved non-discriminatory distribution service, the UDC should retain ownership and/or control of those systems.
Pros: UDC Ownership has the following advantages:
1) Scale economies available to the UDC will result in comparatively lower costs for all customers who elect direct access
2) As a regulated entity, the UDC can provide non-discriminatory metering and communications services to retailers, thereby encouraging retail competition in energy supply and services
3) All customers receive the benefit of the communications system
Cons: UDC Ownership has the following disadvantages:
1) If UDC's are allowed to continue to own meters and to control the meter data, the results of that decision will stifle competition
2) the UDC is not currently perceived as retailer-neutral.
11.5.1.1.3 Alternative 3: Provider Ownership
Energy Service Provides should have the right to own the metering and data systems which they employ to serve their customers. Their systems should however, be flexible enough to equally accommodate customers who wish to provide their own premises equipment as those who wish their ESP to do that for them. At the point at which the system consists of central equipment and the inter-customer network of communications, it is imperative that the competitive, private marketer of Electric Service should be able to exercise substantial control over those systems employed to meter, communicate with, and bill its customers.
Pros: Provider Ownership has the following advantages:
1) Customer segments desired by a retailer are likely to receive attractive inducements to sign up (including metering)
2) The provider can retain control of his own information
Cons: Provider Ownership has the following disadvantages:
1) Reliability and safety of the distribution system may suffer
11.5.1.2 Control
Control is defined as the ability to make decisions, enact policy and select alternatives for the business function under discussion. The activities to be controlled are the operations, maintenance and installation activities (performance of work) associated with usage measurement for metering, data acquisition and data delivery .
This issue was so important to the stakeholders that subsection 11.5.2 is solely devoted to addressing proposed alternatives.
It is important to note, however, that the definition of control over metering and communications does not extend itself to equipment installed beyond the meter on the customer's premise. Customer-owned premises equipment would still be subject to any appropriate regulation, presumably to ensure the security and stability of the overall system, but irrespective of ownership, customer premises equipment should be controlled by the party which has the most to lose, should that equipment be poorly managed. A legitimate interest in control occurs whenever one is at risk for the consequences of the control which is exercised.
11.5.1.3 Performance of Work for Metering and Communications Systems
Regardless of the Commission's decisions on ownership and control, the question of who will actually perform metering and communications activities must be addressed. This subsection breaks metering and communications activities into three basic categories: 1) Operations,
There are basically two alternatives for who should perform this work, the utility and a (potentially 3rd) party elected by the controller of the metering and communications system. To avoid redundancy, the utility alternative is presented such that the advantages and disadvantages are used to articulate both sides of the discussion.
11.5.1.3.1 Operations
Operation of the metering and communications system entails data collection, validation and delivery of usage measurement. In addition, it includes a very limited set of services that are closely linked to the distribution system: providing physical connection and disconnection to and from the distribution system and providing outage reporting services.
Usage Measurement
Operation of a metering system for usage measurement has traditionally been dominated by the meter aspects of the business. The sophistication of the meter was a function of the detail and complexity of the required measurement. The meter reading function served to transport the measurements from the meter to the billing center. The most common approach has been to send a human meter reader to the service location equipped with a hand-held computer. Collected measurements were later entered into computer data systems for bill processing and archiving. The efficiency of conventional meter reading is dependent on 1) scheduling all meters in a geographic area to be read at the same time, 2) designing a path from meter to meter that minimizes travel time between meters and 3) spending as little time as possible actually downloading or entering measurements from each meter. The introduction of the competitive retail market will significantly reduce meter reading efficiencies.
Essential Customer Services
The introduction of a competitive retail market should benefit consumers financially, while not resulting in undue confusion or decreased safety. There are a number issues directly affecting consumers of electric service, regardless of provider.
Access to Usage Measurement
A flexible means to deliver data to all interested parties is an essential requirement of the metering and communications systems operator. All authorized parties must be able to access the information they are entitled to , and no more.
11.5.1.3.1.1 Alternative 1: UDC Operates Metering and Communications System
The UDC is the logical choice to operate the metering and communications system. It can serve both providers and consumers as a neutral, regulated provider of cost-effective measurement services.
Pros: UDC Operation has the following advantages:
1) Scale economies available to the UDC will result in comparatively lower costs for all customers who elect direct access
2) As a regulated entity, the UDC can provide non-discriminatory metering and communications services to retailers, thereby encouraging retail competition in energy supply and services
4) Customers will not suffer redundant costs for basic metering services when performed by multiple companies operating in the same territory
5) UDC operation does not preclude an ESP from offering advanced energy services, or from choosing to act as the customer's agent in its dealings with the UDC
Cons: UDC Operation has the following disadvantages:
3) It is feasible for a separate organization to read these meters and to provide the data to others for their commercial purposes
4) The operation of a metering or communications system can be specified along any appropriate performance standard
11.5.1.3.2 Maintenance
Maintenance typically consists of activities associated with the asset base, including certification, quality assurance, field accuracy testing, field safety testing, removal, repair and return of defective equipment to the manufacturer.
11.5.1.3.2.1 Alternative 1: The UDC will continue to maintain metering and communications systems
The UDC will be responsible for maintaining all metering. As mentioned above, the meter is the end point of the UDC's distribution system. It is essential that all customers connected to this system receive consistent, safe and reliable service. In order to ensure this high quality service, the distribution system must be properly maintained. The Commission recognized this in their December 20th decision when they state " In the restructured industry, they (utilities) would continue their obligation to provide non-discriminatory distribution services to all customers, including direct access customers in their service territories." UDC PBR mechanisms would be structured to focus on utility performance in this critical category, ensuring that the utilities continue to provide quality distribution services and do not jeopardize service reliability or safety as it relates to distribution. Recent observations of restructuring in the UK suggest that even when metering activities are open to competition, 95% of the customers chose the Regional Electric Company (their UDC) to perform these activities.
Non-discriminatory maintenance services ensure that meters are reporting the information accurately. Given the number of parties with a vested interest in usage information (whether for forecasting, reconciliation or billing) the impact of improper calibration, improper installation, incorrect record keeping (ex. Meter multiplier), or missing information is multiplied. The impact of downstream correction once the errors are identified and corrected adds additional complexity. Furthermore, the impacts of inaccuracies are felt not only by the customer with the problem, but by all customers, as these errors impact forecasting and reconciliation. This is remarkably different than in the past, where meter accuracy concerns have generally been associated with addressing customer high bill complaints or investigating theft detection as a result of tampering with the meter or its settings. Increased numbers of electronic meters for higher end commercial and industrial accounts will only exacerbate the need for accuracy.
Pros: UDC Maintenance has the following advantages:
1) The UDC has the expertise and equipment to perform these activities
2) Maintenance services are part of the overall distribution system and should benefit all customers, not just those electing direct access
Cons: UDC Maintenance has the following disadvantages:
1) It is perfectly feasible for meter maintenance to be handled by specialized, licensed personnel.[2]
2) The maintenance of a metering or communications system can be specified along any appropriate performance standard.
11.5.1.3.3 Installation
In the December 20, 1995 decision, the CPUC states the following regarding meter installation, "Our primary concern, is that our oversight of the utility includes the assurance that these services meet specific service, safety, and reliability standards. Therefore, we are requiring the investor owned utilities to install the new RTP or TOU meters". Once again, the CPUC affirmed that the UDC will continue to be responsible and held accountable for the distribution system, of which the electric meter is a component.
11.5.1.3.3.1 Alternative 1: The UDC Should Perform Installation
There are safety reasons for the UDC to maintain this responsibility. The electric meter socket is essentially a live switch, that if handled improperly, is life threatening. While local government authorities currently have and are expected to retain accountability for the inspection of customer wiring, this activity occurs prior to the installation of the meter. If the wrong meter is installed, or the meter is installed improperly, hazardous conditions are created which can cause harm to anyone who inadvertently or advertantly accesses the meter or the panel, including utility personnel.
The installation activity itself requires working with a "hot socket" and requires special training to perform without risk of injury. This is particularly true of complex services (poly phase), such that some UDCs have modified their internal policies to restrict installation and maintenance of these services to meter shop personnel ,who have higher qualifications and are professionally trained to work with complex metering systems safely.
These employees also ensure that the entire metering system (meter, CTs ,PTs) is accurately operating as one unit once the installation is complete, as errors affecting accuracy have greater potential for revenue impact at these installations.
Pros: UDC Installation has the following advantages:
1) The UDC has the expertise and equipment to perform these activities
2) Improper installation will negatively impact the overall distribution system, so it needs to remain part of the UDC responsibility
3) Ability to bring adequate resources to bear to meet CPUC schedule
4) More likely to be able to take advantage of scale economies to reduce costs as installer for all retailers
5) Most knowledgeable about customer base and geographic territory
Cons: UDC Installation has the following disadvantages:
1) It is perfectly feasible for meter installation to be handled by specialized, licensed personnel.[3]
2) The installation of a metering or communications system can be specified along any appropriate performance standard.
11.5.2 Structural Alternatives for Metering and Communication Systems Services
The activities discussed in Subsection 11.5.1 attempted to address particular aspects of metering and communications on a standalone basis. What is less obvious, but more important, is determining what party will exercise control over the complete set of metering and communications system activities.
The control perspective is one crucial element of the decisions that must be made to ensure that these services are available by 1/1/98 and beyond. In the various assigned commissioner rulings guiding this working group and the ratesetting working group, the CPUC may be open to revising its determination that these activities must be retained by the UDC, but the explicit process that might be followed for this decision to be made is unclear. In order to facilitate an informed debate about these control decisions, this subsection identifies and discusses several alternative organizational structures that would control the metering and communications systems necessary for direct access and future unbundling.
The operation, maintenance and installation of metering, communication systems and consumption history database services for electricity consumers are essential services required for the commercial operation of specific direct access transactions, for a broader direct access market which includes aggregators, and for the regulated monopoly distribution functions. While at least five different organizational models have been identified that could be used to control these services, they fall into two major categories, regulated models and competitive models. The distinguishing feature of the two alternatives is control over these functions, within each one there are a variety of options described which can be further augmented by various options for contracting specialized services. The third alternative is a hybrid of the regulated and unregulated models.
The following sections describe the three alternatives and their options: 1) Regulated Alternatives: A) the electric UDC, B) a monopoly information services provider, and 2) Competitive Alternatives: A) the energy service provider, B) several competing standalone information services companies, 3) Hybrid Alternatives: A) a stakeholder-owned information clearing house. For each of these alternatives, the assessment will address the general features of the organization and its ability to perform metering, data communication, and consumption history database activities. Each organizational model has some advantages and some disadvantages.
11.5.2.1 Alternative 1: Regulated Models
From the perspective of metering, communication systems, customer consumption history database maintenance, and bill processing, a regulated alternative would have the same responsibilities as the current IOU. A regulated monopoly would control most or all of the component services for operations, maintenance and installation, and would be subject to cost containment under PBR mechanisms.
Services Offered
Usage measurement, billing and pricing broadcasts could be offered as standard and optional services that the customer or ESP could elect, provided the minimal requirements met ISO/SC needs. Optional services could be based on customer class differences, density, and/or various customer industry-specific or ESP needs. Due to large size and degree of territory coverage, regulated entities are more likely to expand beyond basic service functions into multiple energy (electricity, natural gas) and other commodities (domestic water, sewage), based on their selection of a metering and communications system..
Pros: Regulated models have the following advantages:
1) Energy service customers encounter no problems shifting to/from suppliers (ESP or UDC)
2) It is relatively easy to preserve a continuous consumption history
3) Easy regulatory oversight
4) Metering costs are reduced due to scale economies
5) Coordination of ISO/SC/UDC/ESP requirements less cumbersome than competitive models
6) Continued regulation of metering results in improved competition for customers in generation and retail services
7) All customers benefit without cost-shifting regardless of energy supplier/retailer
8) Scope of responsibility permits wide deployment of low-cost density-based technology solutions without precluding additional alternatives for customers who desire them
9) Regulators have easy access to information needed
Cons: Regulated models have the following disadvantages:
1) Once universal coverage implemented, monopoly status might induce more limited technology innovation than in competitive alternatives
2) PBR mechanism may provide less pressure for cost reduction compared to competitive alternatives
11.5.2.1.1 Option 1-A: Electricity UDC
The Commission assigned this responsibility to the UDC in their December 20th. decision when they stated " In the restructured industry, they (utilities) would continue their obligation to provide non-discriminatory distribution services to all customers, including direct access customers, in their service territories. ". The meter is the end point of the UDC's distribution system. It is essential that all customers connected to this system receive consistent, safe and reliable service. In order to ensure this high quality service, the distribution system must be properly operated and maintained. If some customers are improperly connected , their metering could have a negative impact on all other customers. To ensure consistent, safe and reliable operation of the entire distribution system, the Utility Distribution Company (UDC) should continue to be the sole provider of metering for all customers on their distribution system.
General Features of the Organization.
From the perspective of metering, communication systems, customer consumption history database maintenance, and bill processing, an electric UDC could be imagined to have the same responsibilities as the current IOU. It would be a regulated monopoly that continues to provide all of the component services of the distribution function and receives compensation for that service through the distribution charge. As a point of regulated stability during the implementation of competitive direct access, the UDC can continue to focus on providing superior distribution services to all customers.
Services Offered
The technology expertise and capabilities in routine metering , specialized metering and bill processing that the IOUs have developed and are continuing to improve would be retained and all ESPs could elect to take advantage of them. Usage measurement, billing and pricing broadcasts could be offered as standard and optional services that the customer or ESP could elect, provided the minimal requirements met ISO/SC needs. UDC control also ensures that meters are accurate, that new meter designs are certified before being installed, that specialized meters are available to customers, that the metering activity is conducted on a timely basis to ensure cash flow, that privacy of metered data is maintained as required by statute and that the distribution system continues to operate in a safe and reliable fashion. Third, the regulated utilities currently have systems and processes in place to provide meters to its customers. These include but are not limited to, competitive procurement contracts that take advantage of economies of scale, electric meter shops that are responsible for meter inventory management, acceptance testing, calibrations, meter repair, etc., quality assurance personnel that perform meter testing and certification. Optional services could be based on customer class differences, density, and/or various customer industry-specific or ESP needs. UDCs may also elect to extend services functions into multiple energy (electricity, natural gas) and other commodities (domestic water, sewage), based on their selection of a metering and communications system..
Pros: Electricity UDCs have the following advantages:
1) the quickest option for providing direct access by 1/1/98
2) no changes in current UDC responsibilities are made, and existing utility staff resources and expertise remain in place and are not disrupted
3) regulated utilities currently have systems and processes in place to provide meters to customers
4) minimal changes to privacy statutes for customer usage data
5) experienced in the maintenance of consumption history
6) regulated utilities already operate meter shops, and thereby offer lowest cost meter inventory, testing, certification, repair and other costs of operations
7) minimizes customer confusion for outage and basic service calls
8) familiarity with territory and customer based served results in better quality of service
9) the reliability and safety of the distribution system remains intact
10) non-DA customers also receive the benefit from whatever metering and communications system is installed
Cons: Electricity UDCs have the following disadvantages:
1) potential for higher costs than monopoly INFOCO if natural gas and other commodities are excluded due to regulation and cost accounting complexities
2) coordination with ISO and/or SC requirements may still be more cumbersome than for a singular INFOCO monopoly;
3) multi-site customers across two or more UDCs still have data coordination issues; and
4) competitive direct access suppliers may require proof that UDCs adequately protect data from access by their own affiliates
11.5.2.1.2 Option 1-B: Monopoly INFOCO
A regulated monopoly that meters, routes data across communication channels, maintains customer consumption history databases, and possibly renders bills for other organizations is an alternative option to multiple regulated UDCs performing this function. The term INFOCO has been developed to describe a standalone organization that conducts metering and communication services organization.[4]. Like a UDC, it provides opportunities for economies of scale and greater expertise through specialization in functions that would not be likely for smaller companies.
General Features of the Organization.
The statewide monopoly INFOCO is an organization that is limited to metering, communication systems, consumption history database maintenance, and perhaps data processing for billing. It would not have responsibility for operating and maintaining the distribution system.(sometimes referenced as a LINECO).
Services Offered.
An INFOCO monopoly would offer the same services that multiple UDCs would offer.
Pros: An INFOCO monopoly has the following advantages:
1) lowest cost per unit by having universal coverage and multiple commodities(electricity, natural gas, domestic water);
2) multi-site customer using a single ESP may have fewer problems obtaining consolidated bills;
3) advantages in dealing with vendors by virtue of large size
4) consumption database keeps seamless history across ESPs and LINECOs
5) no affiliate relationships to guard against
Cons: An INFOCO monopoly has the following disadvantages:
1) least cost pressure or need to introduce technology by its monopoly status
2) to retain expertise, personnel and infrastructure, a monopoly INFOCO would have to be formed by "spin-offs" of the existing UDCs, requiring UDC compensation for asset turnover or monopoly INFOCO CTC charges
3) likely disruption and confusion when UDC functions shifted to INFOCO and reconciled
4) requires statutory changes concerning privacy
5) INFOCO management of metering will have a negative impact on the safety and reliability of the distribution system
6) single point of failure for database and communications systems
7) will increase the amount of regulatory oversight required
8) difficult to have in place by 1/1/98
11.5.2.2 Alternative 2: Competitive Models
A number of competitive alternatives exist. To many, the greatest advantage of these models is simply their unregulated status.
General Features of the Organization
Because of its competitive nature, it is difficult make generalizations about the features of competitive models. Each one will look somewhat different based on its goals. However, competitive models do have some common attributes, such as profitability, customer/market- focused, quick to move and entrepreneurial spirit.
Services Offered
Services offered will be tailored to the market that competitor is targeting. This model is likely to offer the minimum information required by regulation for ISO settlement, etc. so that resources can be devoted to providing services that consumers will pay for.
Pros: Competitive Models have the following advantages:
1) meter and data storage choices likely to be under strong cost reduction pressures, providing a benefit to the customer;
2) technology diversity may introduce new products faster and be used to differentiate a particular company
3) customers are perceived to have more choice
Cons: Competitive Models have the following disadvantages:
1) lack of scale economies likely to limit potential for competitive cost reductions
2) more difficult for customers to transfer among market participants
3) lack of experience in metering, communications, or billing
4) multiple companies create problems with assembling statewide data on timely basis for use by government;
5) ensuring compliance with privacy of usage data is more complex in a competitive setting than for regulated monopolies;
6) lack of universal penetration will preclude some technologies;
7) multiple firms increase complexity of providing usage information to ISO and/or SC on a timely basis;
8) dedicated systems likely to be underutilized, thus increasing costs per unit;
9) competition might result in loss of market share and demise of firm with disruption to customers.
10) reliability and safety of distribution system likely to suffer
11) customers that lack appealing market characteristics never receive the benefits of competition
11.5.2.2.1 Option 2-A: Energy Service Provider
The energy service provider (ESP) is a natural consideration for metering, communication of metered information, and data processing to render a bill. Certainly billing is a natural function of a commercial business, but few businesses have to undertake complicated usage measurement at the customer's site and measurement transfer protocols to move these measurements to a central location as precursors to billing. Furthermore, the ESP may only be obtaining approximately one half of the total electricity revenue for some small customers, with revenues for distribution system fees, public benefit programs, and CTC requirements easily surpassing the ESP energy bill in early years of the direct access period. The existence of these sizable revenue flows to other organizations suggests shared usage of metering and communication systems results among the ESP and other service providers and regulated entities will be necessary if the ESP performs this portion of component services.
General Features of the Organization.
The organizational focus of a bilateral contract supplier or aggregator is oriented to matching generation supplies with customer loads. The relatively larger number of ESPs that can be expected versus other more centralized entities that might provide metering and communication services implies that a strong ESP role will require coordination efforts by the scheduling coordinator to ensure aggregate data needed by the ISO is available. Maintenance of a continuous consumption history across several private energy suppliers when the customer has switched would impose burdens not usually encountered in competitive businesses.
Services Offered
An ESP would conduct usage measurement with devices that served its needs most economically, and would be less inclined to be interested in the optimal methods to collect the information that others might require. The measurement, interim recording, and transmittal to the communication system would be accomplished using in-meter, standalone data storage devices, or communication system equipment selected to meet the ESP's needs. Meter certification would conform to standards established for the ESP, and it would meet this minimum standard through its own staff or contracting out this activity. Meter inventory management would be conducted as a business decision of the ESP, which might follow quite different practices than have traditionally been followed by integrated IOUs.
Pros: The energy service provider has the following advantages:
1) customers are free to exercise choice
2) customers may receive special metering deals to sign with an ESP
Cons: The energy service provider has the following disadvantages:
1) maintenance of continuous data histories will suffer, ultimately resulting in higher ISO imbalance costs
2) government would find it much more difficult to assemble timely statewide data compared to the more concentrated alternatives;
3) some poor performing technologies or business practices selected;
4) ensuring compliance with privacy of usage data if customer data is in the hands of firms who can gain competitive advantage from it will be harder
5) no scale economies compared to any of the other alternatives, thus increasing costs for the consumer;
6) lower competence of O&M personnel as a result of the smaller scale operation;
7) some communication systems precluded by low penetration rates resulting from fragmentation of the market;
8) communication systems complexities likely to exceed resources/competencies/experience of energy suppliers
9) reliability and safety of distribution system likely to suffer more than under any other option
10) Scheduling Coordinator role becomes more complex and prone to error
11) no incentive to provide pricing signals or load shedding signals for arrangements outside of the ESP (ex. ISO ancillary services)
11.5.2.2.2 Option 2-B: Multiple, Competitive INFOCOs
In this option, multiple competitive INFOCOs exist to serve the mutual needs of ESPs, regulated distribution companies, and others needing information about energy usage. It provides opportunities for economies of scale and greater expertise through specialization in functions than would be likely for individual energy service companies, but not as great as those provided by a single INFOCO. It also provides a buffer between the services of the ESP and the customer by performing a customer service function that, if grouped with generation services, could provide a competitive advantage to the incumbent supplier over its competitors.
General Features of the Organizations.
The organizational scope of a competitive INFOCO firm is identical to that of a regulated INFOCO. Unregulated INFOCOs compete with one another, most likely bidding to provide metering and communication services between the far more numerous ESPs and all of their end-use customers, but possibly arranging for these services with end-use customers. It is possible that financial institutions (banks, credit card organizations, etc.) could be aligned with INFOCOs to provide metering, communication, and billing services. These combinations would be more likely to be able to benefit from existing financial institution billing capabilities if no bill formatting requirements existed for energy bills.
Services Offered.
Usage measurement would be determined by each INFOCO independently assessing how it would meet the interests of the ESPs, regulated distribution monopolies, ISO/SCs, and perhaps end-use customers. The technology that the INFOCO selects to record usage will be subject to wide variances dependent on how much of the market share it was able to attract, the length of its contract, and how geographically cohesive its footprint is. It is possible that a limited number of competing INFOCOs could afford to have independent communication systems that provided two-way capabilities, but it is clear that sharing the market constrains the ability of any one INFOCO to achieve high penetration rates, and increases costs per customer for all INFOCOs. A large INFOCO would be likely to internalize meter certification and meter inventory as the large scale justified an internal meter shop. The INFOCO would either prepare a bill for the customer or deliver customer usage data to the ESP or UDC for them to prepare their own bill to the customer.
Pros: Competitive INFOCOs have the following advantages:
1) greater scale economies exist than in the ESP alternative;
2) INFOCOs who can afford a communications system would be more likely to offer extended services than would an ESP
3) end-use customers could switch among the family of ESPs using a single INFOCO with minimal delay or expense.
Cons: Competitive INFOCOs have the following disadvantages:
1) customers would still have to coordinate among INFOCOs when switching among ESPs using different INFOCO providers
2) scale economies lower than regulated alternatives
A variation of this approach is the franchise INFOCO which bids to provide services for a geographically specified area. While there would be multiple INFOCOs, they would be time-limited franchise monopolies in a given region. The advantages and disadvantages of this organization are virtually the same as for a regulated, statewide INFOCO monopoly, which is discussed in section 11.5.2.1.2.
11.5.2.3 Alternative 3: A Hybrid Approach
11.5.2.3.1 Option 3-A: Stakeholder Owned and Operated Information Clearing House (hereafter "clearing house").
One way to balance the needs of all relevant parties is to create an information clearing house that is designed, owned and operated by all of them.. The VISA bank card system is an example of this model. This is a not-for-profit company owned and operated by the member banks. It serves primarily as an information clearing house, allowing its members to compete in whatever entrepreneurial ways they choose while providing a necessary common resource that is managed cooperatively for the benefit of all.. The following discussion is abbreviated, since much of the description of this alternative parallels the INFOCO monopoly, and many of the advantages and disadvantages are the same.
General Features of the Organization.
The direct access clearing house would be owned by those participants in the California market who intend to rely on its services. Its board of directors would be structured to contain a fair balance of all stakeholder groups -- the ISO, the PX, the UDCs, schedule coordinators, consumer organizations, competitive providers, etc. -- and to prevent domination by a few players. Its operations and management would be structured to perform the information flows required both for system operations and for healthy competition, and would modify its activities to adapt to the changing needs of parties as the market evolves. It would implement safeguards to prevent unauthorized access to data and would provide a process to investigate and resolve any complaints.
Services Offered
The clearing house would not have to perform metering activities directly, as long as the information which came to it satisfied various key parameters. In effect, the clearing house would control the specifications of the metering function, and could bid out the work, subcontract the work, or rely upon existing member organizations if clearing house rules permitted this. It would acquire metered usage data from all customer premises and other points as needed for system operations and settlements and dispatch this data to appropriate parties in a timely fashion.
Pros: The advantages of an information clearinghouse include:
1) the needs and concerns of all stakeholders are built into the design, creation and operation of the clearing house;
2) achieves the economies of scale and scope of a monopoly, but without requiring regulatory oversight or government management;
3) stakeholder control would enable the clearing house to adapt to changing market arrangements and conditions;
4) the requirement of commercial viability (no subsidies) would provide pressure to be efficient;
5) many of the relevant parties already understand information issues quite well by virtue of their participation in the DAWG and other working groups
Cons: The disadvantages of an information clearinghouse include:
1) delay of 1/1/98 implementation likely in order to ensure that the needs and concerns of all stakeholders are built into the design, creation and operation of the clearing house
2) requires creating a stakeholder governance structure with clear accountabilities
3) potential difficulty in reaching consensus agreements among stakeholder operators with wildly divergent interests (unlike commercial banks)
4) requires new statutes, or revision of existing statutes, to address customer information privacy issues;
5) requires creating a new monopoly entity
6) while knowledge levels have certainly increased, it is by no means certain that enough relevant parties have the level of understanding of information issues required for this undertaking
7) lack of subsidies could result in demise of firm with disruption to customers.
8) reliability and safety of distribution system likely to suffer
END NOTES
[1] For example, CellNet Data Systems, Inc. has a 20 year contract with Kansas City Power & Light to obtain metered consumption data and deliver such usage data to the utility in an agreed upon computer data format. The utility retains overall control of the metering function, even though its employees do not perform the work.
[2] The CPUC sanctioned examination of further unbundling of the UDC distribution function in D.96-03-022, but the efforts of utilities and a recently formed working group are not likely to lead to further CPUC unbundling decisions in the near term. In fact, CPUC decisions and assigned commissioner rulings (ACR) have not yet established a schedule for resolving this major issue. The Ratesetting Working Group is required by an ACR (Duque, June 21, 1996) to provide its recommended schedule to the Assigned Commissioner on August 26, 1996.
[3] The English/Wales deregulated electricity industry now allows licensed meter operators to install and maintain meters. A separate organization is under contract to the POOL to read these meters on a daily basis and provide the data to both the POOL for settlement and to the Tier II energy suppliers for their use in billing their individual customers for energy usage.
[4] LINECO and INFOCO are terms that were popularized by Prof. William Hogan, in his September 1994 paper describing various ways that the electricity industry might be reorganized along functional activities. The most well known term is POOLCO, which the CPUC adopted in the special form of two separate organizations: 1) the independent system operator (ISO) that dispatches previously scheduled power plants to maintain system reliability, and 2) Power Exchange (PX) which takes load schedules and obtains from a set of generator bids the lowest market clearing price where supply and demand are in balance. METERCO and BILLCO were other specialized entities that could be independent or combined with INFOCO.