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Solving the AMI puzzle with incentive alignment

In efforts to exercise my problem-solving skills in a way that is low stress, fun and unrelated to my job as an energy industry nerd—with “nerd” to be read “enthusiast”—I spend a few hours a month putting together jigsaw puzzles. No matter the type of puzzle, I’ve found that the steps involved in the process of completing one are always the same.

  • Step one: Open the box.

  • Step two: Empty the contents of said box on a flat surface.

  • Step 3: Take a few minutes to look at the puzzle pieces and think about a plan of action.

  • And then, finally, step 4: Pick up one piece and begin.

After several hours of trial and error, stops and starts, standing up and sitting down again to change my perspective, there is (most times) a completed image that matches the one printed on the box that the pieces came in.

And, after completion, I sometimes reflect a little on how the simple act of putting together that particular puzzle teaches me professional lessons as well as personal ones (like having the patience to complete it).

On the professional level of lessons, there’s one major thought after that keeps returning. If credibly communicating the customer energy efficiency benefits of investments in advanced metering infrastructure (AMI) to state public utility commissions is like putting together disparate pieces of a massive jigsaw puzzle, then the recent experiences of several utilities and states across the country all point to one conclusion: While we may all really want to deploy AMI at scale in efforts to enable customers with the technology needed to better manage their energy usage, as a community of energy efficiency nerds—umm, enthusiasts—keenly committed to this goal, we haven’t always had the best experience with aligning all of the incentives needed to get it done.

How wide is the spectrum of interests that represent these various incentives?  On one end of the proverbial seesaw is the tag team of energy efficiency advocates and service providers, a camp of stakeholders whose desire to work with utilities to deploy enabling energy management technologies is anchored on the assumption that increased customer empowerment (through technology) will yield quantifiable energy benefits to both customers and the bulk power system at large.

On the other end, are the utilities themselves,  a camp of stakeholders whose desire to deploy AMI for operational business benefits (i.e. less truck rolls, easier meter reads, faster outage response times, etc.) must be weighed against their ability to articulate the customer benefits that will manifest as a result of these investments.

And in the middle of these two camps, are the regulators, the group of stakeholders tasked with the daunting job of assessing whether the camps on either end have made sufficiently compelling arguments to justify holding customers responsible for footing the bill for these investments in the long run.

Sounds easy right? If it only it was that simple.

The use cases for leveraging AMI to drive customer energy efficiency are plentiful. As highlighted in ACEEE’s recent paper “Leveraging Advanced Metering Infrastructure to Save Energy,” utilities across the country have put several of these use cases to work to drive energy efficiency savings at the customer level:

  • Near real-time feedback to provide customers with the necessary insight to determine if their behaviors are actually resulting in energy savings that they can see.

  • Time-of-use (TOU) rates and other price signaling tools that encourage customers to alter their energy usage based on increased understanding of the ways that energy prices fluctuate throughout the day.

  • More informed targeting of customers for programs best suited for their specific energy profiles.

Yet despite the existence of very real customer energy savings potential associated with these use cases, without a coordinated effort amongst stakeholders to qualify both the qualitative (I.e. customer usage data insights and intelligent targeting) and quantitative (i.e. cost reductions and energy savings) customer benefits, this potential will continue to be under realized.

As a public utility commissioner put it to me recently, “I hear a lot about enablement and potential in grid modernization proposals that include asks for rate recovery for AMI investments…however potential is not a benefit. If I provide you with raw groceries, a kitchen, utensils in that kitchen, and time, what I’ve provided you are simply tools. There is no guarantee that the provision of these things will actually yield a meal that’s ready to put on table for a family…and that, in a way, is the nature of the quagmire that we face here at the commission.”

Given these realities, the million-dollar question is: How do we do this? How do we begin to attach real dollar savings on the backend to the front-end dollar investments required to deliver the technology needed to leverage these AMI use cases for energy savings? How do we work together to cultivate an environment in which all stakeholders involved are equally incentivized to ensure that investing in AMI technology will yield the customer energy efficiency benefits that we know that they can? Stated differently, how can we be sure that the disparate pieces of the jigsaw puzzle we’ve dumped out will one day look like the final image that’s displayed on the front of the box?

The answer is two-fold. First, technology and service providers (like Oracle Utilities Opower) will need to continue to do the work of engaging customers so as to better communicate the ways that they can benefit from AMI technology, working with them to encourage better understanding of their energy use and leading them to take the actions that realize all the potential value. In this way, the business case for AMI investments will be made stronger, thus reducing the risk that these plans will be rejected by commissions under the basis of unclear expectations of customer benefits (as they were recently in Massachusetts, Virginia, New Mexico and Kentucky). 

And secondly, all stakeholders will need to work proactively with regulators to encourage the adoption of incentive structures and mechanisms that mirror the preferred outcomes that AMI technologies have the capability to provide. If there is one thing that I’ve found to be true about utilities (like most other actors), is that pursuant to Mankiw’s 10 Principles of Economics, they respond to incentives.  And to the extent that the metrics tied to the incentives offered to utilities begin to better align with the customer focused capabilities of AMI, the chances that the utilities will work harder to ensure achievement of those metrics will increase several fold.

In sum, though it’s true that the AMI puzzle that’s has been dumped out of the box has a lot of parts, the chance to piece together an image that unlocks a whole new world of customer benefits is more tangible and attainable than ever before. While the advances in the technology itself have gotten us most of the way, the alignment of the final two pieces—scaled commitment from utilities and clear support from regulators—will be increasingly important and necessary to get us over the line.

 

Oracle Utilities, including our Opower brand, partners with the world's hardest working electric, water and natural gas companies to empower, enhance and enable your every single day. From cloud-native products and better grid management tools to support for every single step of your customer's journey, we have the answer.  Learn more at oracle.com/utilities. Get specific product information as quick as clicking right here.

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