Investing in America’s Electric Future:

M. William Brier

Edison Electric Institute

The Role of Advanced Metering Infrastructure

U.S. Economic Growth Is LinkedTo Electricity Growth

Electricity Use in the Typical U.S. Home

Sources: The Brattle Group, National Association of Home Builders

* Electricity demand projections based on expected growth between 2005 and 2030.Sources: U.S. Department of Energy, Energy Information Administration, Annual Energy Review 2005 and Annual Energy Outlook 2007

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Historical Projected

Demand for Electricity Is Projected to Increase By At Least 40% by 2030

Increasing Demands for Electricity Require Major Investments

� Generation: According to the U.S. Energy Information Administration, a total of 258 gigawatts (GW) of new capacity is expected between 2006 and 2030, representing a total investment of approximately $412 billion (2005 dollars).

� Transmission: Since 2000, the electric power industry has invested more than $37.8 billion in the transmission system. Shareholder-owned electric companies are expected to invest at least $38.1 billion between 2007 and 2010.

Increasing Demands for Electricity Require Major Investments (cont’d)

� Distribution: Preliminary data indicate that shareholder-owned electric company investment in the distribution system surpassed $17 billion in 2006. This represents a 6.5% increase over the $16.2 billion invested in 2005.

� Environmental Compliance: Two recent EPA rulemakings—the Clean Air Interstate Rule and the Clean Air Mercury Rule—will cost the electric power industry $47.8 billion in compliance costs between 2007 and 2025.

Industry’s Energy-Efficiency Initiatives

� Five key efforts underway:

� Encouraging “smart” and energy-efficient buildings

� Promoting “smart” and energy-efficient appliances and electric technologies

� Commercializing plug-in hybrid electric vehicles (PHEVs)

� Accelerating development of “smart” grid and advanced metering infrastructure

� Developing “smart” rates to give customers more control over electricity bills

Historical Look at Metering in the United States

Concerns with Conventional Meters

� Disconnect between electricity usage and prices

� Customers have no incentive to reduce electricity usage during peak demand

� One-way communication limits ability of utility to respond to customer problems

Public Utilities Regulatory Policies Act (1978)

� Required state regulatory agencies to consider:

� Time of use (TOU) rates

� Load management technology

� Customer and demand management

� Technical challenges under PURPA:

� TOU metering for residential customers

� Self-contained multi-register meter complex and costly

� Peak participation reached in mid-1980s

Looking to the Future

Advanced Metering Infrastructure and the “Smart” Grid

Digitalization of the Electric Grid

� Next-generation electric grid will turn “passive” network into two-way, interactive information highway

� “Smart” grid includes:

� Advanced metering infrastructure

� Network sensing and control

� Load and resource management

Evolution of the Smart Grid

Wave 1: Advanced metering infrastructure

Wave 2: Network management

Wave 3: Customer enablement

Digital Communications Meter data Distribution Intelligent Demand Behind-the-meter metering integration automation applications response applications

Simple data detection Intelligent and integrated optimization

Source: Booz Allen Hamilton, “Getting Smart,” Electric Perspectives, September/October 2007.

Investment Requirements for New System

� According to EPRI, transmission and distribution investment for new power delivery system = $165 billion, over 20 years ($8.3B/year)

� Investment represents digital upgrades to transform current analog system

Source: Electric Power Research Institute, “Power Delivery System of theFuture: A Preliminary Estimate of Costs and Benefits,” July 2004.

Industry Goal: Advanced Metering Infrastructure

� New communication networks and database systems that will modernize the electric grid and provide benefits to electric companies and customers

� “Smart” meters utilize two-way communication, allowing utilities to respond more quickly to potential problems and to communicate real-time electricity prices

� Customers have financial incentives to reduce electricity usage during times of peak demand

� Energy savings will help mitigate need to build new generation

Customer Considerations

� How much money will I save?

� How long is the peak period?

� Is it easy to understand?

� How much control will I have?

� How will I communicate with my utility?

AMI

Regulatory Considerations

� The Regulatory Dilemma

� State regulatory agencies must balance several priorities:

� Affordable electricity prices

� Reliable service

� Environmental protection

� Agencies may reach different conclusions about right path for their states

AMI

Utility Considerations

� Customer benefits

� Economic Value� Which AMI capabilities have the highest value?

� Depends on individual utility and state consideration

AMI

Quantifiable Difficult to Measure

Cost savings Improved customer service (billing, etc.)

Load management Fewer errors

Improved response to outages

Enhanced security (no meter readers)

Smart Meter Challenges

� Deployment of smart meters has been hampered by huge capital costs and relatively long payback periods

� 10 million of 130 million residential meters currently equipped with advanced technologies

� Advanced meters range in cost from $100 - $200 per meter

� Total cost of $12 billion to $24 billion to upgrade remaining meters (digital upgrades)

� Requires significant investment comparable to industry’s current distribution investment ($17 billion in 2006)

Smart Meter Challenges

� Utilities need:

� Customer participation

� Regulatory certainty (state level)

� Reduced depreciation periods (federal level)

Bottom Line

� AMI and smart meters are part of long-term effort to digitalize electric network

� These new technologies will improve energy-efficiency efforts and help defer need for new generation

� Utilities need the support of state and federal lawmakers and regulators