(Source PUC)

Public Utility Commission of Texas

Memorandum

TO: Commissioner Donna L. Nelson

Commissioner Kenneth W. Anderson, Jr.

FROM: Chairman Barry T. Smitherman

DATE: March 3, 2010

RE: March 4, 2010 Open Meeting; regarding the March 2, 2010 letter from Senator

Troy Fraser

Yesterday, Senator Fraser sent a letter indicating his concerns about the accuracy of readings

taken by newly-installed advanced meters. Senator Fraser also listed a series of actions that he

felt the Commission should take that would require testing of the advanced meters; as well as a

suspension of both advanced meter deployment and collection of the surcharge until the testing is

complete. In regard to his recommendation of independent testing of the advanced meters, I am

completely in agreement with this course of action, and have been in discussion with

Commission Staff and representatives of the affected TDUs to set up a testing program with

independent, third-party companies.

After Senator Fraser filed his letter, Oncor filed its own letter, asking for Commission

consideration of a plan to (1) allow for independent testing for any customer with concerns about

their meter, (2) provide additional testing of a statistically significant sample of advanced meters

in the Killeen-Temple area, (3) provide side-by-side testing of advanced meters and traditional

meters, (4) provide some customers with in-home monitors so that customers can track energy

use, and (5) hold meetings in the Killen-Temple area to provide educational materials and

answer customer questions. CenterPoint also filed a letter this morning, indicating that they will

(1) arrange for independent, their-party testing of advanced meters, (2) perform free accuracy

tests of an advance meter for any customer that requests the test, (3) perform side-by-side tests of

conventional and advanced meters and report the results, (4) perform independent software tests

to ensure that the customer's usage is accurately reflected to other market participants, and (5)

deploy 300 in-home devices to customers to show energy consumption and energy use patterns.

I am encouraged by Oncor's and CenterPoint's plans and am open to any other ideas that would

help dispel customer concerns. However, I do not feel that suspending the deployment of the

advanced meters and collection of the surcharge is appropriate at this time.

When going back through the legislative and procedural history that brought us to this point, I

was struck by the broad-based support that advanced meters have received. HB 2129, by

Bonnen (Armbrister, Senate sponsor), from the 79`h Regular Session, included PURA §

39.107(h):

The commission shall establish a nonbypassable surcharge for an electric utility

or transmission and distribution utility to use to recover reasonable and necessary

costs incurred in deploying advanced metering and meter information networks to

residential customers and nonresidential customers other than those required by

the independent system operator to have an interval data recorder meter. The

commission shall ensure that the nonbypassable surcharge reflects a deployment

of advanced meters that is no more than one-third of the utility's total meters over

each calendar year and shall ensure that the nonbypassable surcharge does not

result in the utility recovering more than its actual, fully allocated meter and meter

information network costs. The expenses must be allocated to the customer

classes receiving the services, based on the electric utility's most recently

approved tariffs.

This language was originally in SB 711, which passed from the Senate in a 31-0 vote, was

included in an amendment in HB 2129 on the Senate floor on a 31-0 vote, and HB 2129 was

passed from the Senate with a 31-0 vote and adopted unopposed by the House. HB 3693, by

Straus (Fraser, Senate sponsor), from the 80`h Regular Session, included PURA § 39.107(i):

Subject to the restrictions in Subsection (h), it is the intent of the legislature that

net metering and advanced meter information networks be deployed as rapidly as

possible to allow customers to better manage energy use and control costs, and to

facilitate demand response initiatives.

The final version of HB 3693 passed 30-0 in the Senate and 141-2 in the House.

The rulemaking at the Commission to develop the advanced meter standards involved dozens of

parties and lasted nearly two years before final rules were adopted. As part of this rule,

advanced meters were required to follow standards developed by the American National

Standards Institute, which require that advanced meters be +/- 0.2% accurate.

All the applications involving deployment of the advanced meters by CenterPoint, Oncor and

AEP were settled in non-opposed agreements, supported by a broad range of market participants.

In the CenterPoint docket, the stipulation was supported by CenterPoint, Commission Staff,

Office of Public Utility Counsel, the City of Houston, the Gulf Coast Coalition of Cities, Texas

Coast Utilities Coalition, Demand Response Coalition, Chaparral Steel Midlothian, CMC Steel

Texas, and Nucor Steel-Texas, Alliance for Retail Markets, Reliant Energy Retail Services, LLC,

and Texas Energy Association for Marketers. TXU Energy Retail Company LLC did not sign,

but did not oppose the Stipulation. In the Oncor docket, the stipulation was supported by Oncor,

Commission Staff, the Office of Public Utility Counsel, the Steering Committee of Cities Served

by Oncor, the Alliance for Retail Markets, IBEW Local 69, Reliant Energy Retail Services LLC,

Texas Energy Association for Marketers, and TXU Energy Retail Company LLC. The

stipulation in the AEP docket was supported by AEP Texas, Commission Staff, the Office of

Public Utility Counsel, the Steering Committees of Cities Served by TCC and TNC, Alliance for

Retail Markets, CPL Retail Energy, LP & WTU Retail Energy, LP, Reliant Energy Retail

Services, LLC, REPower LLC, TXU Energy Retail Company LLC, and Texas Energy

Association for Marketers. Texas Industrial Energy Consumers did not oppose the stipulation.

The benefits of advanced meters, in addition to providing customers with more and better

information about their electric use, includes a significant improvement of the reliability of

transmission and distribution systems. As was remarked recently by Oncor CEO Bob Shapard,

the current grid is a "Neanderthal." Outages in North Texas from snow and ice storms, and in

Houston and the Gulf Coast from hurricanes will occur again. Without advanced meters, utilities

"really are guessing" (according to Mr. Shapard) when trying to figure out if a customer is

without power. With advanced meters installed, utilities will have a much better idea of where

problems exist and how to fix them.

In his report to the Commission on the cost/benefit analysis of infrastructure upgrades and storm

hardening programs, Dr. Richard Brown discussed incorporating advanced meter systems into

system restoration procedures, and estimates that advanced meters could help reduce total system

restoration time by as much as 25%, providing a significant reduction in both the cost of

hurricanes, along the Gulf Coast, and the length of outages. An April 2009 City of Houston task

force conceived by (former) Mayor Bill White looked at service reliability after Hurricane Ike,

and noted that advanced meter "`service down' reports can identify the location of any grid

failure, theoretically enhancing response and restoration intervals." In referencing CenterPoint's

smart meter deployment, the report said "those smart meters have important capabilities for load

management through real-time pricing capabilities, for bidirectional metering, for more rapid

new service connections and other valuable improvements to our overall electrical system."

Advanced meters can also help reduce customer's electric use, ultimately reducing their electric

bill, and help reduce peak demand. In May 2007, when much of this discussion about advanced

meters was taking place, reserve margins were projected to be below 10%, falling to 5.9% in

2012. While reserve margins are projected to be more robust over the next several years, they

are projected to fall below required 12.5% by 2014. Advanced meters will play a significant role

in helping to reduce peak load and generation to meet that load. In a pilot program in Baltimore,

customers were given rebates to reduce electric use during peak periods. Participants reduced

their peak use by 22% to 37%. Baltimore Gas and Electric plans on expanding the program, in

conjunction with advanced meter deployment, and hopes to reduce peak energy demand by

1,700 MW by 2015.

Last October, CenterPoint received $200 million in federal stimulus funds to help speed the

deployment of smart meters. It is unknown how any suspension of the deployment in the

CenterPoint area would impact the grant.

Finally, another benefit of advanced meters is that retail electric providers are beginning to use

the technology to offer new products and services to customers. On February 26, 2010, Business

Wire reported that Nations Power began providing true pre-paid service with real-time pricing

for Texans with smart meters, and this is the first offer of its kind anywhere in the U.S.

I want to make sure that customers' concerns regarding advanced meters are addressed, and

customer education is the key to solving this problem. Customers need to know, for example,

how meters are currently tested. Every meter received by Oncor is first tested by the

manufacturer, Landys+Gyr, to ensure that accuracy is better than +/- 0.15%. Oncor then tests a

sample of the meters received, and of the more than 11,000 meters tested, none were outside of

specification with regard to accuracy. Finally, Oncor has tested thousands more conventional

and advanced meters at customer's homes in response to questions. Continued testing of

advanced meters and side-by side comparisons will only make customers more knowledgeable

about their new meters. In looking at the complaints, many are received from customers in

Killen-Temple, where the meters are newly installed. In fact, in recent conversations with other

elected officials in the Oncor service territory where advanced meters have already been

deployed, they reported few to no complaints received regarding advanced meter accuracy. The

independent, third-party testing of the advanced meters as proposed by Senator Fraser and Oncor

is a very good way to address customers' concerns, and I look forward to discussing the details

of the plan at the open meeting. However, I believe the benefits provided by advanced meters

support the continued deployment of advanced meters throughout Texas.

I look forward to discussing this matter with you.