Eric Matheson, Pennsylvania Public Utilities Commission

Smart Meter Cost RecoveryPennsylvaniaEric MathesonEnergy Advisor to Commissioner CawleyApril 20, 2012

Enabling Legislation• Act 129 of 2008• Requires EDCs to install Smart Meters inaccordance with a depreciation schedule not toexceed 15 years [from the date of plan approval];plans filed by August 14, 2009; 30-month graceperiod from plan approval to develop andimplement plans; EDCs must install, uponcustomer request, interval meters during thegrace period. After grace period, smart metersmust be installed upon request.

Legislation – Cost Recovery• On a full and current basis via a reconcilable automaticadjustment clause under section 1307– Recover annual depreciation and capital costs over the life ofthe Smart Meter Technology *– Recovery cost of system upgrades required to enable SmartMeter technology *– Operating expense and capital savings are netted from thesecosts• Base Rate Case, including a deferral for future base ratecase recovery on current basis with carrying charges• Note – lost or decreased revenues by a utility due toreduced consumption or shifting demand may not berecovered, except through a base rate case.* Incurred after November 14, 2008

Implementation Cost Issues• Eligible costs – “All reasonable and prudent costs”– Capital costs for equipment and facilities [use avg.plant balance for quarterly projections]– Expenses including depreciation and O&M expenses,testing, upgrades and personnel training expenses– Related administrative costs – incremental plandevelopment, cost analysis, M&V, and reporting costs.– Return based on weighted average cost of capital andtaxes– Stranded existing meter cost recovery – accelerateddepreciation basis– Tax effect of ARRA grants (PECO)

Implementation cost issues• Cost recovery for optional Smart Metercapabilities:– Must pass benefit/cost test– Includes: connect/disconnect; sub-hourlymetering; voltage monitoring; remoteprogramming; communicate outages andrestorations; support of net metering

Reconcilable Cost Recovery• Tariff must be filed and approved; filings in August,effective next January 1, covering period ending June 30.• Costs subject to annual review and reconciliation [somesettlements provided for quarterly price updates – all allowinterim filings where appropriate]• No cross-customer class subsidization– Direct costs allocated to each customer class –[2-3 classes]– Common costs allocated by number of meters in each class• Rate Design– Fixed Customer charge. [some settlements allowed a per kwhcharge for residential customers]• Over/Under recoveries – legal rate of interest on over andunder recoveries

Return on capital• ROE - What ROE should be used if utility hasn’t filed a baserate case in years?– Settlement (PECO)– Actual base rate case ROE 3 years old• Capital structure – What if an individual utility uses debt orequity to excess or defect?– Settlement (PECO)– Actual base rate case ratio < 3 years old– Actual ratio >3 years old & within zone of reasonableness– EDC barometer group avg. ratio if outside zone of reasonableness• What debt rate should be used to calculate ROR? [PA – actualavg. debt rate as published in the PAPUC quarterly report]

QuestionsEric MathesonPhone: 717-346-3863E-mail: ematheson@pa.gov