Thursday, December 16, 2010

The AMI mismatch...

Something to toss on the fire next time people are arguing about how to pay for AMI installations.  There is a mismatch between the costs of AMI installations and certain benefits.

In most jurisdictions, AMI installations are carried out by the distribution operations of the utility.  Generally, this effort is paid for through the distribution ratemaking function, since it its the distribution operation that is doing (or more often contracting for) the work.  The Distribution operation does see some benefit, in reduced meter-reading costs and in some cases other cost reductions or service improvements, but often a big part of the cost-benefit analysis is enabling dynamic pricing.

However, here's the dynamic pricing kink: the "dynamic" part of dynamic pricing is primarily driven by the generation function.  Transmission and distribution are generally recognized as being almost entirely fixed cost systems.

What makes this particularly interesting is how this may be shoving the cost/benefit analysis askew in those jurisdictions where generation has been spun off from utility operations into competitive markets and/or those jurisdictions pursuing decoupling of distribution (and transmission) pricing from generation.

Just a thought to make your day more interesting.  I'd appreciate comments on whether this is a real issue, or I'm missing something.

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