eti a02 loquellano_smart meters in victoria

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Assignment Coversheet

COMPUTING AND INFORMATION SYSTEMS

Date: 6 October 2012

Department: Department of Computing and Information Systems

Subject: ISYS90032

Title: Emerging Technologies and Issues

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outlined in University policy. Proven involvement in plagiarism or collusion may be recorded on my academic file in accordance with

Statute 13.1.18.

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Please tick to indicate that you understand the following statements:

I declare that:

This assignment is my own original work, except where I have appropriately cited the original source (Appropriate citation of original work

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Student Signature: MA. JO-ANNE B. LQOUELLANO Date: 6 OCTOBER 2012
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SMART METERSIN VICTORIA

An Individual Case Study

Ma. Jo-Anne Loquellano565767

[email protected]

Emerging Technologies & Issues


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Table of Contents

Preface..................................................................................................................................................1

Question 1: Organisational Adoption.................................................................................................2

Question 2: Domestic Adoption..........................................................................................................5

Question 3: Innovation......................................................................................................................10

Question 4: Roll Out..........................................................................................................................15

Reference List....................................................................................................................................22


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Preface

The succeeding pages contain four separate and self-contained reportspertaining to the Advanced Metering Infrastructure program. They deal with the

following broad issues:

1. Organisational adoption

2. Domestic adoption

3. Innovation; and

4. Roll Out.

A reference list that combines resources used for all of the papers is provided at

the end.

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Question 1: Organisational Adoption

Explain the advantages that make the roll out attractive to the Department ofPrimary Industries (DPI) and utility companies. You must refer to relevant,credible company information to substantiate your answer.

Introduction

With the 2004 Victorian Essential Services Commission (ESC) decision to replace

manual with interval meters, and then in 2006, add two-way communications

and more advanced functionality as part of an upgrade to an Advanced Metering

Infrastructure (AMI) program, Victoria achieved the first state-wide rollout of

digital smart meters (Deloitte 2011a). This comes prior to the establishment of

the 2008 National Smart Metering Program (Australian Energy Market Operator

2011).

This brief report focuses on advantages that make the AMI rollout attractive to

Victorias regulatory and policy-making body, the Department of Primary

Industries (DPI), and Victorian utility companies. The rationale or project benefits

are first established to lay the foundation in examining these advantages. For

the conclusion and summary, I ground my analysis in relevant literature on IT

adoption of organisations.

AMI Program Benefits

Global consultancy firm Deloitte, in a report to the Department of Treasury and

Finance, identified four broad benefit categories from the AMI program (2011a):

1. An estimated $802 million representing avoided costs from installing old-

technology accumulation meters and their manual readings;

2. Increased efficiencies from network operations, which include faster

detection of blackouts and quicker reconnections, avoiding errors from

time switches, reducing theft, avoiding overloads and transformer failures,

and being able to regulate demand in times of supply shortages;

3. Innovative tariffs and better demand management from Time-of-Use

(TOU) pricing; and

4. Other smaller benefits from minor efficiencies obtained, particularly for

retail operations.

Advantages for DPI

Insights can be drawn from the above rationale and the departments key work

areas (DPI 2012e) to pinpoint possible advantages for DPI, which may include:

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1. Improved ability to create more relevant policies from digitization of

consumer metering data;

2. Increased acumen for tariff design and regulation resulting from TOU

pricing; and

3. Enhanced energy management capability.

Firstly, swifter access to more real-time metering data can result into an

improved capacity for policy-making. Granular data obtained from smart meters

can feed into administrative policies that better benefit consumers, particularly

disadvantaged groups, providing more solid investment and decision support

(DPI 2012e).

Secondly, regulation of energy consumption through more complex rate

structures can be derived from Time-of-Use (TOU) pricing. An important caveat

on this is Deloittes acknowledgement that TOU benefits can be very difficult to

estimate because of great variability, being highly dependent on the publicsresponse to AMI and flexible pricing itself (2011a). To capture this advantage,

DPI must astutely implement Demand Side Management or DSM. This helps

encourage consumers to opt-into TOU and positively change consumer

behaviour through decreased energy consumption at peak hours (Breukers,

Heiskanen, Brohmann, Mourik, Feenstra 2011). DSM coupled with pricing signals

provides the DPI with a regulatory tool to encourage a shift in energy

consumption to less critical times.

This then leads to the third identified advantageenhanced energy

managementsuch that policy and regulation enables the DPI to achieve itscharter to build and support the energy industry (DPI 2012a). Key to realizing

this advantage is improving TOU rate designs so that rates are based upon

marginal costs and not at several multiples higher, alongside wholesale

consumer adoption of smart meters in order to have the capacity for flexible

pricing in the first place (Friedman 2011, p. 13). International studies suggest

that implementing a basic TOU tariff reduces energy consumption roughly 5%,

but this could already halve the spot price of electricity (Newsham and Bowker

2010; Rosenzweig, Fraser, Falk and Voll 2003 cited in Deloitte 2011a). These can

bode well for DPIs energy management and bolster the Victorian governments

efforts towards reducing the countrys carbon footprint.

Advantages for Utility Companies

On the other hand, utility companies seem to benefit the most, if one looks at

the absolute number of benefits ticked for distributors and retailers under DPIs

Categorisation of Benefits Table (DPI 2012b). These can be summarized as

increased efficiencies in network and retail operations, which lump together

benefits 2 and 4 of Deloittes benefits categorization in the preceding page.

Specifically, these include (Deloitte 2011a):

Operational advantages for remote connectivity and access to data,validation and monitoring, and energy load balancing and management;

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Less reliance on manually-read meters with decreased billing errors;

Improved forecasting and scheduling based on past demand and

simulations of future use; and

Increased ability monitor energy consumption and demand, minimizingoutages (distributors) and enabling flexible tariffs (retailers).

Distributors

Arguably the main advantage for electricity distributors is that smart meters

enable them to track almost in real-time customers electricity consumption and

demand, and then respond accordingly. In the short-term, they can relocate

power where demand is high to avoid outages, while in the long-term, they can

project how much extra capacity and infrastructure they might need to meetfuture demand (Deloitte 2011a).

Retailers

The Energy Retailers Association of Australia or ERAA considers financial gains

for an electricity retailer to depend not so much in terms of the amount of

energy it sells, but on how it efficiently trades in the wholesale market (ERAA

2012). Smart meters allow half-hourly readings, as opposed to once every three

months. This enables retailers an opportunity to design a flexible scheme that is

responsive to consumer demand during peak and off-peak hours, and also,

better manage the companys own assets and debts (ERAA 2012).

Conclusion

The above report briefly examined the advantages that accrue to DPI and utility

companies. Digital smart meters make energy data more accurate and more

readily-available. This information offers tremendous business value,

empowering the DPI and the utility providers to do something that [they] could

not do before (Seddon 2012). If widely adopted by consumers and wisely

managed by these organisations, smart meter technology, and benefits it

enables, can become a resource that allows competitive advantage for the

Victorian energy industry. Seen this way, it arguably follows Barneys (1991)

Resource-Based View of the firm and provides insight as to why DPI and the

utilities consider AMI advantageous.

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Question 2: Domestic Adoption

Analyse the costs and benefits that accrue to the householder as a result of the

roll out. You must make use of relevant and credible literature.

Introduction

Electricity distributors commenced Advanced Metering Infrastructure (AMI)

installation in 2009, targeting a 2013 completion. As at 1 May 2012, there have

been more than half of an estimated 2.6 million replacements, with consumers

paying between $160-$270 for AMI meters (Deloitte 2012; Deloitte 2011a).

Meanwhile, an extensive State Government review finds that the most

responsible option is to continue the rollout of Smart Meters, because delay ininstallations mean the customers reap fewer benefits while facing more [energy]

cost increases (VAGO 2009).

This brief report analyses the costs and benefits that accrue to Victorian

householders as a result of the smart meter roll out. The following table

summarises the main arguments, with succeeding paragraphs discussing each

point in detail. Finally, a conclusion is derived from the analysis.

COSTS BENEFITS

Possible threats to privacy andsecurity with the collection and

tracing of personal information

Consumer empowerment: obtainingreal-time data on energy usage and

being able to respond accordinglyConcerns on health from

electromagnetic exposure

Better customer service through

alerts that can notify electricity

distributors of any problemsEconomic costs related to smart

meter roll outTable: Costs and Benefits of the Smart Meter Rollout in Victoria

Analysis of Costs and Benefits

Threats to Privacy and Security

Smart Meters are two-way, digital communication systems that record

electricity usage every 30 minutes, with such information accessible through

web portals or In-Home Displays (IHD) that make tracking electricity

consumption more detailed and immediate (ESC 2012b, p.5).

On a basic level, the technical security standards are compliant with the

requirements of the Essential Services Commission (ESC) and other regulatory

agencies, which minimises accidental privacy risks particularly when IHDs are

connected to Home Area Networks (Lockstep 2011).

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On a deeper level, the collection of data presents a rich goldmine for more

targeted advertising from electricity distributors, retailers and even third parties.

As such, it poses a threat to consumer privacy and security when used

unknowingly and without consent. For example, large retailers already mine

various shopper habits, among them, to determine who are pregnant customers

and entice loyalty among them, as they are seen as lucrative sales targets

(Duhigg 2012). The US-based chain Target came under fire for directly marketing

baby products to an adolescent before she had revealed that she was pregnant

to her family (Wilson 2012). In the same manner, behavioural patterns obtained

from digital meter readings over time make it possible to trace, and later on,

target, customers based on their electricity usage data (ESC 2012b).

Electricity distributors and retailers under the Victorian smart meter program are

bound by the Privacy Act to handle data generated from smart meters with

discretion, confidentiality and secrecy. The Australian Governments Privacy Actconsiders as Personal Information (PI) information or opinionabout an

individual whose identity is apparent, or can reasonably be ascertained from the

information or opinion (Office of the Australian Information Commissioner

2012). Therefore, energy providers can stand in breach if they use information

collected for other purposes and without the consumers consent because the

individual retains the right to choose how, or whether, their metering data can

be used for purposes other than monitoring electricity consumption.

This puts the onus on both provider and consumer to reach a respectable middle

ground: the former needs to be prudent in the manner it retains, protects anddiscloses data, and communicate so clearly, while the latter bears the cost of

trusting the providers, while being circumspect when opting into secondary use

of data. Indeed, this is reflected in a recommendation by Lockstep Consulting, a

private practice specialising in digital identity and privacy based in NSW. In its

Privacy Impact Assessment Report for the ESC, Lockstep determines that

metering data belongs to the customer and are bound by Australias National

Privacy Principles (2011).

Concerns on HealthA report from EMC Technologies (2011) states that smart meters radiation levels

are within the limits defined by the Australian Radiation Protection and Nuclear

Safety Agency, and are in fact lower than other household items such as mobile

phones and baby monitors.

However, the scientific community is divided on this matter of electromagnetic

fields (EMFs) and health effects. Some research do not find conclusive evidence

on adverse health effects (van Rongen, Croft, Juutilainen, Lagroye, Miyakoshi,

Saunders, de Seze, Tenforde, Verschaeve, Veyret, & Xu 2009; Otto and von

Muhlendahl 2007; Valberg 2006). Meanwhile, research quoted by Stop SmartMeters Australia, a private sector coalition opposing the smart meter program,

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argues that chronic radiation exposure has been found to cause adverse health

effects, among these, cancer, neurological diseases and impairments particularly

among children, loss of fertility, and insomnia (Fragopoulou et al. 2010 cited in

Stop Smart Meters Australia 2011; Sage & Carpenter 2009). The coalition also

cites the World Health Organizations report that while evidence is still being

gathered, radiofrequency EMFs [are classified] as possibly carcinogenic to

humans, a statement echoed by the International Agency for Research on

Cancer (cited in Stop Smart Meters Australia 2011; Sage & Carpenter 2009). As

such, the health and safety of households, especially those with children, are

cast in doubt.

Economic Costs Related to AMI Roll OutThe question of who pays the real bill in the AMI program is a politically-sensitive

issue. Network costs are essentially passed through to consumers even though itis the electrical distributors who shoulder upfront costs related to the smart

meter installation (Deloitte 2011a). For example, experience in California, USAs

implementation of smart meters shows a short term cost in addition to costs of

installing the smart meters (NERA Economic Consulting cited in McGann and

Moss 2010).

Consumer Empowerment

One highly-touted consumer benefit of smart meters is its enabling use of

flexible or time-of-use (TOU) pricing that can empower consumers to manageand reduce electricity bills (DPI 2012d). However, this can only materialize if

consumers indeed shift their energy consumption to off-peak hours as a result of

pricing signals, and if energy suppliers are able to introduce appropriately-tiered

tariffs. One concern is that retailer adjustments to the tariff structure can directly

increase or decrease the benefits obtained by consumers from these (Deloitte

2011b). Both TOU tariffs and Critical Peak Pricing tariffs are seen as potentially

problematic particularly for vulnerable or inelastic electricity use households

who, through economic or social circumstances, do not have as much leeway to

change their energy usage (Deloitte 2011b; McGann and Moss 2010).

Nonetheless, DPIs SwitchOn campaign aims to encourage this shift in consumer

behaviour by providing more information on TOU pricing, the actual cost and

breakdown of electric bills, and managing energy consumption, either by

switching retailers or through increased appliance efficiency (DPI SwitchOn

2012a, passim). All of these pertain to increasing consumer knowledge and

empowering the consumer to make informed choices, benefits of which will

redound to the customers themselves. Such a process can be seen to follow

Rogers Innovation-Diffusion Decision Process for individuals (1995), wherein

empowered and knowledgeable consumers are hoped to be persuaded to adopt

smart meters.

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Better Energy Provision for Consumers

There are numerous consumer benefits derived from increased efficiencies in

network operations, such as avoided costs of manual meter readings (Deloitte

2011a). However, perhaps the million-dollar question is whether smart meters

lower electricity prices in the long-term. There is conflicting research on this

depending on the approach. A University of Melbourne paper cites a NERA

Economic Consulting report that reduced consumption during peak demand is

not enough to defer future investments in generation infrastructure (McGann and

Moss 2011). Meanwhile, the Brattle Group Consulting posits that a combination

of TOU tariffs with Demand Side Management (DSM) is needed to truly reduce

electric bills (Faruqui 2012; Sergici and Faruqui 2011).

Regardless, the commonality is that smart meters can potentially provide better

energy services, primarily through less blackouts and swifter remote connections

and disconnections, by directly affecting the supply and demand of load.Because smart meters can communicate with other inherently energy-intensive

but smart appliances (such as air-conditioners) through a home area network,

consumers who enable direct load control can reduce overall consumption when

usage is cycled on and off during critical periods (McGann and Moss 2010).

Meanwhile, supply-side considerations mean offering sophisticated financial

incentives alongside stricter codes and standards for appliances, buildings and

machines to promote energy efficiency (Faruqui 2012).

Conclusion

At first glance there seem to be straightforward costs and benefits to the smart

meter program for households. However, closer inspection reveals that there are

attendant issues to be addressed, and a need to closely manage the program, in

order to minimize costs and truly maximize benefits. One example is that

ensuring consumer privacy and security may conflict with gathering and sharing

consumer data to create advantageous tariffs. This puts the pressure on

government to regulate electricity providers so that they not only abide by the

law, but also, collect just the right quantity and quality of data in order to

sufficiently derive value for them (i.e. marketing research) to pass on as value forthe consumers (i.e. tiered pricing). As another example, consumer empowerment

through improved choices for wiser decisions can only materialize if TOU pricing

is implemented in a way that benefits the public, without undue disadvantage to

more vulnerable sectors of society. Lastly, better energy provision can be more

meaningful if this is tied to lower electric bills, energy being a staple commodity.

This means that short-term spikes in electricity expenses must be offset with

long-term savings.

The cost-benefit analysis emphasizes a need for better project management,

greater regulation and increased transparency, key themes on which the ESCsrecommendations build on (ESC 2012b).

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Question 3: Innovation

Develop a proposal that illustrates how smart meter technology should be

adapted to ensure that householders are made conscious of their power

consumption, and therefore change their consumption behaviour. In your answer

consider technical feasibility (how this could be implemented, legislated,

monitored and administered), likely problems, and additional benefits to the

society.

Introduction

Program mismanagement seems to be rife with the Advanced Metering

Infrastructure (AMI) roll out schedule delayed by a year (VAGO 2009), overblown

costs by half a billion Australian dollars (ABC News 2010), and mounting

opposition from consumers on installing digital meters in their homes due to

privacy, security and health concerns (Stop Smart Meters Australia 2011).

This brief report outlines a proposal justified by theory, expert advice and

practice. I draw from key AMI roll out recommendations from the Victorian

Auditor-Generals Office (VAGO), Deloittes Cost-Benefit Analysis and the Brattle

Group to form a three-pronged proposal that focuses on changing consumer

energy consumption behaviour. Ultimately, the aim is decreased energy

consumption and increased energy efficiency (VAGO 2009). I endeavour to

ground this proposal on IT adoption theory. The conclusion examines the

proposals merits and shortcomings.

The table on the next page offers the proposal approach, people responsible, and

actions needed, with further detail in the succeeding paragraphs.

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PROPOSAL

ASPECT

STAKEHOLDER

RESPONSIBLE

ACTION/S NEEDED

1. Demand Side

Management

(DSM)

1.1 Government regulatory

agencies, particularly the

Australian Energy Regulator

(AER) and the Essential

Services Commission (ESC)

1.2 Victorian utilities (electrical

distributors and retailers)

1.3 Victorian consumers

1.1.1 Create a focused and realistic DSM program learning from the

implementation experience of others (Gehring 2002)

1.1.2 Consider a transdisciplinary context (particularly drawing from

economics, psychology and sociology disciplines) for DSM

program design (Breukers, Heiskanen, Brohmann, Mourik,

Feenstra 2011)

1.3.1 Communicate and engage with consumers to enable

understanding, transparency and sustainability (Gehring 2002)1.3.2 Partner with interested third parties to improve participation,

reduce cost and emphasize the message of energy conservation

(Gehring 2002)

1.3.1 Become aware that a rationale of AMI is energy efficiency and

affordability, because in the past twenty years, electricity prices

have risen 82% compared to consumer goods 37%. This

rationale is related to sustaining Australias competitive

advantage as a resource-rich country with a sustainable and

environmentally-conscious energy sector (Barney 1991)

1.3.2 Proactively obtain more knowledge on DSM and smart meters

from a wide range of reputable sources, and perhaps, even

consider testing touted benefits of the meters and TOU pricing,

to help make an informed decision on adoption

2. Project

Managementand

Implementation

2.1 Department of Primary

Industries (DPI)

2.1.1 Ensure DPI has the organizational structure to properly manage

AMI and attendant risks (VAGO 2009), alongside DSMimplementation

2.1.2 Continue efforts on consumer engagement to work through

issues, particularly on safety & health, energy efficiency,

innovative tariffs (Deloitte 2011b;VAGO 2009)

2.1.3 Proactively manage technology risks involved, such as delivery

of the smart meter equipments expected functionality,

alongside promoting related projects to reap expected benefits,

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such as usage of In-Home Display units (Deloitte 2011b)

3. Governance and

Control

3.1 Relevant government agencies:

AER, ESC, DPI

3.1.1 Closely monitor the AMI programs costs and benefits following

Deloittes analysis

3.1.2 Keep abreast of AMIs economic viability by reflecting the

effects of risks and changes in scope and assumptions (Deloitte

2011b)

3.1.3 Design a regulatory framework to reasonably incentivize the

energy industry in maximizing benefits from AMI (VAGO 2009)

3.1.4 Coordinate with relevant national government and industry

bodies

Table: Changing Consumer Behavior: An AMI Proposal in Brief

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The table in the previous page summarizes a three-pronged approach to change

consumer behaviour, based on an understanding that individual IT adoption is a

complex decision process, influenced by prior conditions (Rogers 1995).

At one level, we first need to change cultural perceptions that were reinforced by

previous practice. DSM as a portfolio of measures to improve the energy system

at the side of consumption helps package smart meters attractively (Palensky

and Dietrich 2011, p. 381). Key to deriving the benefits of AMI is if consumers opt

into Time-of-Use (TOU) pricing and, through either IHDs or web portals tracking

consumption, monitor and conserve their households energy (McGann and

Moss 2010). Behavioural changes are thus seen as complementary to achieving

more efficient energy usage (Palensky and Dietrich 2011). Deloittes

recommendation of web portals, and its subsequent take-up by energy

distributors, is a step in the right direction.

On a macroeconomic level, consumer behaviour needs to be reinforced with the

right messages from the environment. Because government is such a big and

powerful entity, it arguably can influence norms of social systems through policy

and regulation, albeit not immediately. Over time, however, effective project

management and implementation alongside tight program governance and

control on AMI, and the smart grid network of Australia as a whole, can help

change entrenched consumer consumption behaviour.

The Brattle Group, a practice specializing in encouraging smarter methods for

the electricity industry, makes the case for dynamic pricing, which is simplytime-based pricing that is maximized through DSM and smart meters (Faruqui

2012; Sergici and Faruqui 2011).

ConclusionThe experience of other countries, particularly recent years that has seen a

renewed interest in DSM, is generally positive, if designed and implemented

properly. For example, energy efficiency financing programs that are made

possible with DSM is estimated to have saved 4,500 MW on average over three

decades (Faruqui 2012). More vulnerable sectors of society need not bedisadvantaged, as low-income consumers in California, who are able to shift

energy consumption by at least 22% relative to average consumers, prove

(Sergici and Faruqui 2011). While the benefit of a DSM-based proposal is that it

administers a portfolio of measures to encourage energy efficiency (Palensky

and Dietrich 2011), its limitation is that it needs a well-constructed package of

policy, program administration and regulation in order to succeed. DSM has been

around since the 1980s and can be considered on its third generation (Gehring

2002; Faruqui 2012). The experience of energy efficiency and DSM programs in

Canada, Germany and the Netherlands, to name a few, is closely tied to giving

due regard to contextual factors apart from careful program management andgovernance (Breukers et al 2011). Because DSM targets those who need and

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demand energythe consumersit is particularly important that there be real

social and behavioural changes among them for a successful implementation.

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Question 4: Roll Out

What should the DPI and utility companies change about how they are

approaching the smart meter roll out? What can be improved, and how?

Introduction

Consulting firm reports and consumer advocacy websites paint a roll out of the

Advanced Metering Infrastructure (AMI) program that is fraught with opposition

and lack of clear understanding on its objectives and benefits (Deloitte 2011a;

Stop Smart Meters Australia 2011).

This brief report has two main sections, one on areas of improvement for the

Department of Primary Industries (DPI), and second, for utility companies. First,we delve a bit deeper into the origins of AMI in order to provide a historical

context. We next summarise main criticisms of the roll out based on reviews

from private sector (Deloitte) and government (Victorian Auditor Generals Office

or VAGO) to form the basis of our recommendations for DPI. We draw from

literature on individuals adoption of technology to provide context on our

suggestions for improvement. For a conclusion, these changes are synthesized

together with the approach used.

The AMI Origin: A Lack of Clear Communication from the Start

The AMI program leapfrogged the replacement of old accumulation to intervalmeters, which was the 2004 Essential Services Commission (ESC) ruling, and

instead mandated digital smart meters in early 2006. This followed a 2005

cost-benefit study on the societal benefits of advanced functionality (VAGO

website 2011). The study proposed that the interval meter upgrades could be

enhanced because there was a positive cost-benefit to having remote meter

reading, and remote connect and disconnect capabilities (CRA International

2005).

Late in 2004, the year of the ESC ruling, a pilot project on smart meters had

been launched by an electricity distributor to understand customers propensityto change their electricity consumption patterns if provided with more

information about their consumption and its relative cost at different times of the

day and year (Bayard 2004).

Critical Analysis on DPIs Roll Out

Arguably, understanding and responding to the cultural and behavioural changes

that smart meters require is central to improving the AMI program roll out and

avoiding its risks. Judging from the brief history sketched above and the gap of

consumer-targeted information until the first VAGO report came out in 2009, itseems that the DPI underestimated the effort in convincing consumers of the

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benefits of smart meters. Deloitte alludes to this need of a mindset change,

stating, AMI creates a platform for changing the way electricity is delivered to

customers (2011a).

Therefore, the main criticisms of the roll out are (VAGO 2009; Deloitte 2011a):

1. Lack of consultation and a progressive engagement with stakeholders,

particularly the biggest end-user group, the consumers;

2. Lack of project governance and control to minimize and manage

implementation and technology risks; and

3. Inadequate cost-benefit analysis to create a comprehensive economic

justification, and then to engage with groups who stand to become better

or worse off.

The critical failure of the DPI is to communicate, particularly with consumers whostand to be most affected with the changes. When the decision was made to

adopt smart meters instead of proceeding with less-intrusive interval meters,

this should have signalled a need to begin engaging end-users in a dialogue,

particularly if the technology is foreseen to impinge on consumer privacy. This

did not happen, nor did any awareness campaign occur to encourage outspoken

respondents from the pilot run to influence their social networks. Rogers (1995)

theorizes early adopters as more inclined to adopt technology and characterize

them as more risk-tolerant, have higher socioeconomic status, and highly-

interconnected with peers. The DPI could have engaged with pinpointed early

adopters from the pilot study (those generally favourable and supportive ofsmart meter roll out) to leverage on their communication and social networks.

Inferring from the role that early adopters play in speeding up adoption of

innovations (Tushman cited in Seddon 2012), this could have helped catalyse the

informal acceptance of smart meters among the broader majority.

What the DPI Can Change

The improvements suggested on the following table draws from the critique

above and on the Unified Theory of Acceptance and Use of Technology or UTAUT,

a synthesis of eight models on IT acceptance (Venkatesh, Morris, Davis andDavis, 2003). The UTAUT helps understand what drives acceptance of IT

innovations as a means to create interventions that facilitate adoption

(Venkatesh et al 2003). Recognizing that the AMI program is already mid-

implementation, we further segment the first set of recommendations based on

Rogers Innovation-Diffusion process (1995), to target consumers who are still

deciding whether or not to adopt smart meters, those who decided favourably,

and those who rejected.

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CRITICISMS OPPORTUNITIES FOR IMPROVEMENT OF THE DPI

1. Lack of

consultation and

a progressive

engagement in

engaging with

consumers mid-implementation

AT DECISION STAGE(Convince to Adopt)

FAVOURABLE DECISION(Support Decision)

UNFAVOURABLE DECISION(Persuade Otherwise)

2.1Have consumer focusgroups to find out currentexpectancies onperformance and effort,and structure awarenesscampaigns accordingly

Publicise the SwitchOn

campaign online andthrough traditional mediato introduce the concept offlexible pricing, andencourage consumers toopt-in and become mindfulof reducing energyconsumption

Reach out to differentconsumer groups thathave price sensitivity,drawing from Deloittesvulnerable and non-vulnerable classificationsthrough social media

2.2Reinforce facilitatingconditions (Venkatesh etal 2003) that encourage theconsistency of smart meteradoption with values, needsand experiences.

Provide information on the

SwitchOn website fordifferent needs:- those who have alreadyinstalled smart meters andare considering switchingto TOU pricing- those who have switchedto TOU pricing and needguidance in adjusting

highlight success stories ofreduced electricity costsand benefits to thehousehold from smartmeters

2.3Establish regular dialoguewith groups opposing the rollout, such as Stop SmartMeters, beginning withpeople who are perceived asopinion-leaders, to use socialinfluence in persuading the

public of the merits of AMI Acknowledge that simplistic

fact sheets online will notdeter opposition.

Address the fundamentalconcerns of consumers onprivacy and health throughmore detailed websitesand/or dialogue withrespected spokespersons(researchers or practitionerswho have experience inimplementing AMI).

3. Lack of projectgovernance andcontrol tominimize andmanageimplementationand technologyrisks

3.1Understand that adoption of smart meters and Time-of-Use pricing (TOU) requires a fundamentalmindset change, but is essential for the program to be successful

3.2Acknowledge inadequacy of program management staff (possibly in both numbers and in skillset)handling the AMI program and take steps to create more efficient team

3.3Develop a risk management plan immediately, starting with the risks that have alreadymaterialized

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4. Inadequate cost-benefit analysisto create acomprehensiveeconomicjustification

4.1Learn from published papers and international research on states that have adopted digitalmetering technology, combined with AMI lessons learned to date (Houseman 2010)

4.2Adopt a whole-of-project view to complement incremental analysis of benefits and risks

Table: Opportunities for Improvement for the DPI

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Criticisms on Utility Companies Roll Out

Five Victorian electricity distributorsCitiPower, Powercor, Jemena, United

Energy and SP AusNetbusinesses that own and maintain the electrical

equipment such as poles and wires (ESC 2012a), are responsible for the

installation of digital smart meters across the state (DPI 2012c).

A national cost-benefit analysis on the national smart meter program decided on

a distributor-led roll out, however, this was only expected to be beneficial in

Victoria if the cost of the roll out fell in the lower bound of estimates and if

benefits of the business efficiencies achieved were in the upper bound (McGann

and Moss 2010). As such, Victorian electricity distributors are arguably even

more pressured towards recouping investments and maximizing revenues. This

possibly helps explain why the Australian Energy Regulator finds an estimated

AUD$500 million cost blowout over the three-year roll out, which may

eventually be passed on to consumers (ABC News 2010; Edwards 2011).

What the Utility Companies Can Do

The current situation of Victorian distributors, coupled with conflicting

information on digital meters safety and privacy ramifications, makes them

easily susceptible to mistrust by the Australian public (Stop Smart Meters

Australia 2011, passim). It is therefore imperative that there is heightened

communication and transparency, alongside learning from other countries

experience, for distributors to allay the publics anxieties and assist government

in a smooth transition. These include:

Establishing smart meter compatible web portals. Currently, only

Origin Energy and Jemena have portals that enable consumers without In-

Home Displays to access and track energy consumption in almost real-

time, with United Energy in a trial phase (DPI SwitchOn 2012b). These

portals should be mandatory, to enable transparency and sustained

engagement with consumers, a key recommendation of private

consultancy firm Deloitte (2011b).

Working with the Australian Energy Regulation to create tariffs

addressing both vulnerable and non-vulnerable households.

Deloitte (2011a) distinguishes these consumer segments and

recommends carefully structuring energy tariff levels. Although a

Melbourne University study shows households unable to shift consumption

because of specific circumstances (i.e. disabled, unemployed, retired,

single-income, etc.) are made worse-off with Time-Of-Use (TOU) pricing

(McGann and Moss 2010), Deloittes Customer Impacts Study reveals tariff

structures are key to avoid this (2012aa). Regardless, the capability of

digital metering enables a more granular approach towards pricing thatshould be maximized.

Page 19 of29


23/28

Having the distributor organisations ready for change,

particularly in preparing billing changes. Considering that reduced

electricity bills is arguably significantly related to customer satisfaction,

distributors must have processes, systems and resources in place to

deliver this benefit soonest. This ensures consumers performance

expectancy of lowered utilities is addressed (Venkatesh et al 2003).

This particular benefit is just one among many lessons captured in an

Electric Power Research Institute report, which itself would be

recommended reading for the companies (Houseman 2010).

In fairness to the distributors, response papers they submitted to the

Department of Treasury and Finance (DTF) seem to convey an open attitude

towards discussion on controversial issues. They address a number of issues on

privacy and security, health, and billing (DTF website 2012) (DTF 2012). In light

of these being main consumer concerns, these specific suggestions are further

recommended to spur the rate of smart meter adoption, such as:

Publishing the privacy plans of distributors in general terms. Apart

from simply-worded privacy statements to safeguard consumers, plans of

distributors as encapsulated in their responses to DTF can be synthesised

and/or publicised in general terms, to enable transparency and consumer

engagement.

Responding tactfully but directly to perceived health concerns.

Energy providers seem to have left this up to the government and not

engaged on this issue, although they refer to these in their

communications (response papers). Apart from coordinating for an intra-

industry panel with independent speakers for clarity, they can also be pro-

active and engage one-on-one where feasible. Examples are providing

certified personnel for installation, and thoughtful placement of smart

meters away from bedrooms or water sources.

Conclusion

The recurring theme in identifying opportunities for improvement is recognizingthe complexity and multi-layered issues involved in AMI. Consumer issues of

privacy, security, health and safety are closely-related to their sense of well-

being and therefore warrant continuous dialogue and engagement in a sincere

and transparent manner. Theories concerning an individuals decision to adopt

an IT innovation and the rate of his/her adoption are useful contexts in making

recommendations. Drawing from the research of Rogers (1991), one should first

target increased consumer knowledge, while recognizing socioeconomic and

personality characteristics and prior conditions such as social norms and current

needs in persuading the consumer to make a decision to adopt. Meanwhile, the

collaboration of government and the energy industry in terms of ensuring thatconsumers performance and effort expectancies are fulfilled, are useful insights

Page 20 of29


24/28

in hastening the adoption process (Venkatesh et al 2003). Together, these

theories lay the foundation for the manner and context of the opportunities

presented.

Page 21 of29


25/28

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