20150812AVU to Staff 64 Attachment B.pdf

2015
Avista
Corporation
02-06-2015
Washington Advanced Metering Project – Business Case
Staff_PR_064 Attachment B Page 1 of 23
Washington Advanced Metering Project
Business Case

Table of Contents

I. Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

II. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
A. Advanced Metering Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 B. Industry Trends in Advanced Metering. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
C. Avista’s Experience with Automated and Advanced Metering. . . . . . . . . . . . . . 7
D. Advanced Metering Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
E. Customer Meter Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
III. Customer Benefits from Advanced Metering. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
A. Access to Interval Energy Usage Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
B. Customer Home Area Network Interface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
C. Energy Alerts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
D. Customer Privacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 E. Utility Employee Safety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
F. Future Opportunities for Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
G. Elimination of Manual Meter Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
H. Remote Rapid Reconnection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
I. Outage Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 J. Energy Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
K. Energy Theft and Unbilled Energy Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
L. Billing Accuracy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
M. Utility System Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
N. Washington Advanced Metering - Project Benefit Summary . . . . . . . . . . . . . . . 18
IV. Preliminary Estimate of the Project Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
A. Electric Meters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
B. Electric Meter Labor – Internal Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 C. Electric Meter Labor – Contract Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
D. Natural Gas Modules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
E. Gas Module Labor – Contract Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
F. Head End Hardware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
G. Head End Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 H. Head End Labor – Contract and Internal Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
I. Network Communications – Hardware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
J. Network Communications – Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
K. Network Communications – Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
L. Corporate Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
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M. Washington Advanced Metering - Project Cost Summary . . . . . . . . . . . . . . . . . 21

V. Preliminary Deployment Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

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I. Executive Summary

Avista Corporation (“Avista” or the “Company”) is committed to a path of high customer
satisfaction, which includes, among other things, offering its customers information and
choices that help them manage their energy costs. The Company views advanced metering infrastructure (“advanced metering” or “AMI”) as an enabling technology key to this mission. Advanced metering has emerged as a powerful solution among a range of
smart grid technologies that enables utilities to improve responsiveness to customer
needs, improve information sharing with customers, and ultimately improve overall
customer service. Advanced meters are capable of two-way communication and are equipped with the ability to measure the incoming and outgoing flow of electricity from a customer’s premises in configurable intervals that range from 5 minutes to an hour. This
communication capability means the meter can remotely transmit energy-use information
to the utility and the customer, and can also receive and respond to signals sent from the
utility to the meter. Avista is certainly not alone in the deployment of advanced metering. The drive
of utilities to improve customer service levels, coupled with supportive regulatory
policies, advances in metering technology, and reductions in the price of meters, have
helped propel a trend toward digital metering across the industrialized world. Penetration of advanced meters in the U.S. has increased from just under 5% in 2008 to over 30% by 20131, and is expected to reach 50%2 to 70%3 by the year 2020.

The range of customer benefits associated with advanced metering includes near real-
time energy use information, energy alerts, more accurate billing, greater privacy, improved energy efficiency, and remote rapid reconnect of service. Advanced metering also provides the opportunity for pre-pay options, time-of-use pricing, improvements in
the integration of customer-owned distributed generation, and demand-based pricing
mechanisms. These systems also enable improved theft-loss prevention, outage
management, utility infrastructure planning, employee safety, and reduced fuel and carbon emissions with fewer meter reader and service vehicles on the road. In addition to these benefits, advanced metering provides additional tools that allow the utility to
communicate and transact with customers in ways the customer prefers.

The Company has entered the initial planning phase of a program to deploy advanced metering for its electric and natural gas customers in its Washington service area. The Washington advanced metering project will build on the Company’s experience with
automated meter reading in Idaho and Oregon, and advanced metering in Pullman,
Washington, to provide direct customer benefits and improved operations for Avista’s
1 Assessment of Demand Response and Advanced Metering. Federal Energy Regulatory Commission Staff Report, October 2013. 2 Leveraging Business Intelligence and Analytics to Improve Performance. Presentation by Gartner Research made to Avista, September 2014. 3 From Pike Research in 2012, as cited from Elster presentation made to Avista, 2015.

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Washington customers. The project, which will encompass approximately six years, will
deploy advanced meters to approximately 253,000 electric customers, and 155,000
natural gas customers4. The preliminary estimate of the capital cost for this program is
approximately $142.1 million. The Company has also estimated the quantifiable benefits associated with advanced metering. In the near term, the overall direct cost to customers
associated with converting to advanced metering is expected to exceed the quantifiable
benefits, but in the long term the overall benefit to customers is expected to exceed the
costs. And, as highlighted above, advanced metering will provide immediate
opportunities for improvements in customer communications, education, energy efficiency, carbon reduction, and a host of other benefits to both the customer and the
Company.

II. Introduction

Utilities today are engaged in a major reinvestment effort in the nation’s electric grid, with much of that focused on infrastructure designed to transform the system into the intelligent grid of the 21st century. Deployment of these modernization technologies is
designed to improve the power grid’s reliability and performance by optimizing
electricity supply and demand through better visibility of the system and response
capabilities. Known also as the “smart grid,”5 these technologies are designed to enhance power delivery by promoting intelligent two-way communication between suppliers and consumers. Ultimately, these types of investments will move the nation closer to
establishing a more efficient and effective electricity infrastructure that is expected to
help contain costs, reduce emissions, incorporate more sources of variable renewable
energy, increase power grid reliability, and provide greater choice and flexibility for utility customers. Improving the efficiency of the nation’s grid infrastructure is not the only driver of these investments. Utilities are also under increasing pressure to deliver
customers an improved and more-tailored service experience and greater service value,
on par with what they are experiencing in their interaction with other service providers.
Though utilities are viewed as lagging behind their retail counterparts when it comes to providing personalized customer experience, the industry is moving forward. Better
understanding customer preferences allows the utility to differentiate its service offerings,
which results in more informed and satisfied customers. More informed customers are
more likely to participate in utility-sponsored initiatives and innovations, and they also perceive higher value from their personalized service. Developing this capability requires investment in a range of supporting technologies, one of which has been the deployment
of meters equipped with two-way communication capability, referred to in the industry as
“advanced” or “smart” meters. Utilities installing these metering systems are aiming to
4 Number of customers expected to receive meters over the six-year course of project implementation. 5 Smart grid technology includes everything from interactive appliances in homes to substation automation
and sensors on transmission lines. It is a system that uses various technologies to enhance power delivery
and use through intelligent two-way communication. Generators of electricity, suppliers and end-users are all part of the equation. With increased communication and information, smart grid implementation can monitor activities in real time, exchange data about supply and demand, and adjust power use to changing
load requirements.
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provide customers with tools to better understand and manage their energy use, deliver
improved service quality and operational benefits, and achieve a greater degree of
customer satisfaction.
A. Advanced Metering Infrastructure Advanced meters themselves are only part of an integrated metering system. That is, they
must be connected with specialized communication networks and information
management systems in order to deliver value to the consumer and the utility provider.
This entire system of meters, communications, and digital hardware and software systems is referred to as advanced metering infrastructure. A brief description of the major
components of these systems is provided below.

1. Meters
Traditionally, utility customers have had few tools to effectively understand and manage their energy use, because conventional meters, including automatic meter reading (AMR)
systems6, are not equipped to provide specific and timely information on consumption.
Advanced meters7 can measure the incoming and outgoing flow of energy from a
customer’s premises in configurable intervals that range from 5 minutes to an hour. This
communication capability means the meter can remotely transmit energy use information to the utility and the customer, and can also receive and respond to signals sent from the utility to the meter. When the advanced meter is paired with a customer-focused website
or an in-home energy display, the information it provides enables the customer to make
informed and timely decisions in relation to their energy consumption, helping the
customer turn information into actions that benefit them. 2. Metering Communications Network
A specialized and secure communication system is required to transmit information
between the advanced meter and the utility. And while there are various options available
for providing this communication link, it is commonly accomplished by the implementation of three integrated systems, the Neighborhood Area Network, the Field
Area Network and the Wide Area Network. The Neighborhood Area Network, also
known as a “mesh network,” is composed of the wireless communication that takes place
between the individual advanced meters. Through this network of communication,
information is transmitted from meter to meter and in the process is aggregated and transmitted to the Field Area Network. The latter is a broadband wireless system that may
support only one function, such as advanced metering, but which can also be designed to
support a full range of advanced grid-device communications. The Wide Area Network is
a separate computer-based communication network that connects seamlessly with the
Field Area Network. The Wide Area Network is responsible for transmitting metering data collected by the Field Area Network to the utility operations center. The design of
6 Automatic meter reading meters (or AMR) provide only one-way communication from the meter to the
utility, and typically provide only one monthly reading of the customer’s energy use. 7 The advanced electric meter project will involve a complete replacement of the conventional electro-mechanical meter. Advanced metering for natural gas is accomplished by replacing the mechanical register on the existing natural gas meter with a new digital, communicating module. The gas meter itself is not
replaced.
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these three network systems is dependent on the characteristics of each utility’s system
and the advanced metering solutions ultimately selected.

3. Meter Data Collection System This system is composed of computer hardware and software applications that control
and coordinate the communications networks as well as collecting the usage data from
the advanced meters in the field. The software is designed and provided by the
manufacturer of the advanced meters being installed. Metering data is then transmitted
from the collection system to the utility’s Meter Data Management System.
4. Meter Data Management System
This system includes computer hardware and software applications that are responsible
for storing, validating, editing, and analyzing the advanced meter usage data. Metering
information from this system is then imported to other specialized software applications to perform a range of business functions such as customer billing, outage management,
conservation voltage monitoring, and theft detection.

B. Industry Trends in Advanced Metering
The drive of utilities to improve customer satisfaction and deliver operational benefits, coupled with advances in metering technology, has helped propel a trend toward digital
metering across the industrialized world. Advanced metering systems today are more
robust and reliable than previous iterations, and technologies are coalescing around
proven approaches and standards. And as the technology continues to mature, the cost of
the meters continues to decline. State and federal regulatory policies, as well as those of regulatory associations, such as NARUC, have also played a role in accelerating the
deployment of advanced metering systems. The Energy Information Administration8
reported that in 2012, 533 U.S. utilities had installed 43,165,183 advanced meters. Data
collected from various sources by the Federal Energy Regulatory Commission9, reported
the penetration of advanced meters as climbing from just under 5% in 2008 to over 30% by 2013. In addition to rates of penetration, the report documents federal and state
regulatory efforts promoting advanced metering, customer benefits resulting from
deployment, and efforts around the nation to promote demand response initiatives.
According to the Edison Foundation Institute for Electric Innovation, the number of
advanced meters deployed in the U.S. had reached 50 million by July 2014, with a residential penetration rate exceeding 43%10. According to Gartner11 research, the
installation of advanced meters is expected to top 130 million in Europe by 2016. In the
United States, the number of deployment projects for advanced meters is expected to
reach 260 in 2016, double the number of deployment projects in 2009. Longer term, the
8 Energy Information Administration. Frequently Asked Questions: How many smart meters are installed in
the U.S. and who has them? 9 Assessment of Demand Response and Advanced Metering. Federal Energy Regulatory Commission Staff
Report, October 2013. 10 Utility-Scale Smart Meter Deployments: Building Block of the Evolving Power Grid. The Edison Foundation, Institute for Electric Innovation. September 2014. 11 Leveraging Business Intelligence and Analytics to Improve Performance. Presentation by Gartner
Research made to Avista, September 2014.
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penetration of advanced meters in the U.S. is expected to reach 50% to 70%12 by the year
2020.

Here in the Pacific Northwest, several investor-owned utilities have already implemented automated meter reading or advanced metering systems, including Avista, Idaho Power
Company, Pacific Power, Portland General Electric, and Puget Sound Energy. In addition
to these, many public utilities in the region, including Avista’s neighbors Inland Power
and Light and Kootenai Electric Cooperative, have installed advanced metering, or are in
the planning or acquisition phase of doing so.
C. Avista’s Experience with Automated and Advanced Metering Avista’s Washington advanced metering project will build on the Company’s experience
with automated meter reading and advanced metering to provide customer and
operational benefits to Avista’s Washington operations. In its Oregon service area, Avista has for many years operated a mobile meter data collection system that encompasses
104,000 meters. In 2004 - 2008, Avista installed approximately 220,000 automated meter
reading meters in its Idaho service territory. This system employed multiple
telecommunication technologies, including wireless networks, powerline carrier, and
mobile field collectors.
In Pullman, Washington, the Company led a smart grid demonstration project that created
the first “smart community” in the Pacific Northwest. The demonstration project was part
of a larger federal initiative that was launched in 2009. The project involved the
automation of many parts of the electric distribution system in Pullman, and included the deployment of advanced metering infrastructure. In addition to deploying advanced
meters, Avista installed a wireless telecommunication network to provide connectivity
with the meters, and a meter data management system to aggregate, store and display
customer meter data.
D. Advanced Metering Security In keeping with its Customer Privacy Policy, Avista is committed to ensuring that private
customer information is safe and secure at all times. Providing robust security measures
to help accomplish this is integral to the success of the Washington advanced metering
project. Advanced metering systems today incorporate modern cyber security methods to ensure data is protected from the meters to the secure data center. Metering data is
encrypted at the meter, and any access to the metering systems must be authorized and
authenticated. Although security is embedded in the meter and system components, it is
up to Avista to understand each component and to ensure that the equipment design and
implementation meets the security requirements for this application. Items such as data integrity, availability, and confidentiality of customer information are considered each
time a particular technology is assessed and implemented. To that end, Avista will
leverage an existing “security working group” that applies risk assessments, oversees
implementation of controls, and evaluates each technology device. The security working
group is composed of a representative cross section of employees from the functional
12 From Pike Research in 2012, as cited from Elster presentation made to Avista, 2015.

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areas in the Company, and will include members associated with the advanced metering
project, including the meter shop, distribution operations, information technology,
security, application development, and others as necessary. The Company will use
industry best practices based on a variety of guidelines and standards, including NISTIR 7628, since it deals directly with guidelines for smart grid cyber security.

The security working group will also develop a Washington advanced metering system
security plan to document the Company’s strategy for the secure implementation and
operation of the system. The structure of the plan will focus on the assessment of security risks and control measures, and the implementation and monitoring of security controls.
The plan will adopt what is known as a “cyclical” strategy because the review and
assessment steps are repeated over time as the technologies and their respective risk
profiles change and evolve. This group will carry out the implementation of the security
plan, will address new and upcoming issues, perform evaluations of the effectiveness of controls, and make recommendations to the “oversight committee” when appropriate.
The oversight committee is composed of directors and managers who are responsible for
managing security risks at the enterprise level.

E. Customer Meter Options Avista is aware of the range of customer issues and concerns that have been raised in
connection with the deployment of advanced metering across the country. While the vast
majority of consumers is willing to accept a new digital/communicating meter, there is a
small percentage that can be strongly opposed to the installation of such equipment at
their premises. Those consumers who refuse to receive a new meter are referred to as choosing to “opt out” of the program. The choice a customer makes to oppose advanced
metering is typically motivated by three main drivers. The first is health concerns related
to perceptions about radio frequency emissions. The second driver is a privacy concern
over the kind of customer information being communicated by the meter and collected by
the utility. The third has to do with perceptions about the accuracy of digital meters compared with conventional metering.

The Company believes that proactive customer communication is key to minimizing the
number of customers who ultimately choose to opt out. In addition to early and active
communication on the part of the Company, Avista will focus on providing ways for our customers to raise questions, issues and concerns they have about advanced metering. We
believe responsive communication with the individual customer is the best way to
address their issues and concerns. Additionally, by listening to customers, Avista can
adjust its communications to ensure we are addressing the full range of issues that are
important to our customers.
From its research and its own experience, Avista expects the number of customers who
ultimately choose to opt out to be very small. For example, of the approximately 13,000
customers who received advanced meters in the Pullman project, none ultimately opted
out of the program. Prior to deploying meters under the Washington advanced metering project, Avista will file a separate tariff with the Washington Utilities and Transportation
Commission that will contain the proposed conditions under which any customer can opt
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out of the advanced metering program. That, of course, comes at a cost to the utility and
its other customers, as we separately dispatch trucks and service personnel to widely
dispersed parts of our service area to read meters and perform other tasks as needed.
Details of the proposed tariff will be discussed with Staff and other interested parties before it is filed.

III. Customer Benefits from Advanced Metering

Customers experience benefits from the deployment of advanced metering in a variety of
ways. These include improvements in service quality and customer experience that are
generally more visible to the customer, as well as those, which may not be visible to the
customer, that serve to reduce operating costs associated with providing service. These benefits are also often categorized by whether or not their financial value can be readily
quantified. A brief description of these customer benefits is provided below, including the
Company’s estimate of the annual financial value for those that are readily quantifiable.
A summary table of these customer benefits and their estimated value is provided at the
end of this section of the report.
A. Access to Interval Energy Usage Data
Conventional meters, including automated meter reading, provide the utility and its
customers with only very basic, historical, monthly energy-use data. Advanced meters
continuously measure customer energy use, which is recorded and stored at set intervals (typically every 5 to 15 minutes). This interval data is then periodically transmitted to the
utility where it supports business processes and is made available to the consumer.
Customers can use the utility web portal to view and analyze their recent interval-energy
use to learn more about how they use energy, and as a tool to save energy and money.
B. Customer Home Area Network Interface The home area network is a specialized wireless network for energy data; advanced
meters have the capability to interface with this network. This interface allows the
advanced meter to provide the customer actual real-time energy-use data via an in-home
display or for use by a “smart” thermostat. As consumer technologies continue to evolve, the home area network interface to real-time energy data will play an increasingly
important role in the development of “smart” homes and businesses.

C. Energy Alerts
The detailed information on energy usage provided by advanced metering gives the utility the ability to send outbound messages to customers about the status of their energy
use at any given point in time. An example of an energy alert would be the customer’s
request to be notified by the utility when the customer’s monthly usage reached a certain
level, or instantaneous demand surpassed a customer-set number.
D. Customer Privacy Because the advanced meter is transmitting energy-use information to the utility, there is
no longer the need to have meter reading employees on the customer’s property each
month. While there will still be instances where utility employees must visit the
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customer’s premises, advanced meters significantly reduce the overall frequency of such
occurrences.

E. Utility Employee Safety The deployment of advanced metering reduces the number of instances where a utility
employee is dispatched for a field service call. Fewer field service calls, in addition to
eliminating manual meter reading, reduces the risk of injury to employees engaged in
field activities.
F. Future Opportunities for Benefits Advanced metering is an enabling technology that provides the platform to achieve
additional customer value and satisfaction. Though some of these consumer benefits may
not yet be practical in the Pacific Northwest, due to relatively low retail electricity prices,
they have been implemented by utilities in other parts of the country. Having advanced metering capability allows the utility to have the technology available to integrate
additional customer benefits as the timing becomes appropriate. Some of these future
benefits are described below.

1. Rate Options Advanced metering is a foundational technology for enabling the utility to implement rate
structures that require interval metering capabilities. Some of these rate options include
time-of-use pricing, critical peak pricing, and demand pricing. Of these options, demand
pricing is emerging as a likely means to ensure customers’ rates more accurately reflect
the value of the system they use. This is particularly the case for customers owning distributed generation. Advanced meters with remote connectivity can also be used to support demand-response initiatives and rate offerings such as ‘pre-pay’ options.

2. Micro Grids and Smart Cities
The field area network installed as part of the advanced metering deployment can be designed as a ‘multi-application’ network. As such, the network can support the
communication needs of a range of other grid modernization and automation efforts,
including micro grids and smart cities initiatives.

3. Data Analytics While there are many documented uses of the information provided by advanced
metering that provide customers value, the industry expects it will provide the utility a
platform for creative and innovative uses of interval energy and other data that will
emerge over time.
4. Distributed Generation
Advanced metering provides the utility with improved capability to accommodate the
increasing prevalence of customer-owned generation on its system. Advanced metering
will provide a better understanding of the operation and effects of distributed generation
on the system, as well as support a range of utility programs to appropriately compensate customers for the contribution of their generation.

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G. Elimination of Manual Meter Reading Deployment of advanced meters virtually eliminates manual meter reading, creating the
opportunity for substantial operational benefits. These come from reduced labor costs,
vehicle miles driven, diminished safety concerns, and reduced back office activities.
1. Regular Meter Reading Routes
In Avista’s Washington service territory, there were approximately 40 meter readers that
completed 4.66 million manual reads in 2013. Costs for manual meter reading include
labor, meter reading hardware and transportation, along with apportioned costs for administration. Operational benefits resulting from advanced metering are estimated at
$4,842,671, which represents a reduction in only the direct costs associated with reading
the meter.

2. Special Meter Reads Meter readers perform an average of 7,750 special meter reads each year. While special
reads are a small fraction of the overall reads gathered, they represent a significant cost
since they are often not part of the meter readers’ regular route. In addition to the time
spent gathering the read, there are added costs for driving to and from the individual
premises and for the customer service representatives’ time spent setting up the read, and then updating the customer information after the read is complete. Operational benefits for special reads enabled by the implementation of advanced metering are estimated at
$204,017.

H. Remote Rapid Reconnection The remote service switch is a feature of the advanced meter that allows it to be remotely disconnected and reconnected. In circumstances where a customer’s service has been
disconnected, those customers will experience a more rapid restoration of service through
advanced metering. This is because the utility will no longer have to send a service
person to the premises to physically restore energy service. In 2013, Avista experienced over 150,000 instances of accounts being opened, closed or
transferred in its Washington service area. Over 29,000 of these cases involved greater
than one day between the close of one service and the opening of the next service, and
14,702 of these cases required the dispatch of field service personnel to physically disconnect or reconnect the service. The benefit of having remote service connectivity for all account opens and closes was estimated at $1,728,042.

In the same year, Avista recorded over 39,000 contacts related to credit or collection
issues, and over 30,000 instances where field service personnel were dispatched and physically suspended or restored service. With the deployment of advanced metering, the majority of these field dispatches would be avoided. The annual benefit associated with
this change was estimated to be $1,193,060. In addition to these costs, there are cases
when a Company service employee who is dispatched to suspend service ends up making
a collection on an account instead. This type of service call, as well as those related to leaving written notices, could be avoided with advanced metering, and the associated benefit was estimated to be $453,454.
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In addition, when a connection request falls outside normal business hours, there is a
tariff-related charge to the customer for service after hours. With the capability for
remote service connectivity, customers requesting reconnection after hours would have
their service restored almost immediately, and could avoid paying an after-hours service fee. The Company estimated that in 2013 this would have saved customers $104,040.

There are occasionally times when a service disconnect or reconnect becomes
complicated and requires the presence of law enforcement personnel or other measures to
ensure the safety of the Avista employee. With deployment of advanced metering, and the elimination of the need to dispatch field employees to perform this function, the
Company estimates it would save $25,896 each year.

Finally, Avista has estimated that the rapid reconnect feature will reduce customer call-
time costs by $107,242, and will reduce lost revenues by $36,931. I. Outage Management Advanced meters are constantly sensing meter function and communicating with the
utility’s data systems to alert the utility of status changes. This allows the provider to
know in near real-time whether there is power to the individual meter, or if it has been interrupted for some reason. When power is disrupted, the advanced meter is equipped to
send a signal indicating a potential power outage at the particular customer premise. This
outage information can be integrated with the utility’s outage management system to
provide a more complete picture of overall system outages. With better visibility of the
many isolated outages during a large outage event, the investigation and restoration processes will be more efficient and shorter in duration, resulting in both operational and
customer benefits.

Customers impacted by an electric outage, depending on the duration, can experience
financial losses due to manufacturing disruptions, food spoilage and myriad other issues. This is particularly the case for commercial and industrial customers, who very often
cannot conduct their business without the use of electricity13. The U.S. Department of
Energy has developed a tool, known as the Interruption Cost Estimate Calculator (ICE)14
that can be used to estimate the ultimate cost to customers of an electric outage. To
estimate the value of improvement in outage restoration times, the Company used the ICE calculator to place a value on its total outage time for 2013, and then assumed that on
average, outage restoration times would be improved by five percent with the deployment
of advanced metering. Similar figures have been reported in the industry to be as high as
10 percent15. For Avista, a 5 percent reduction in outage time produced a calculated
savings for customers of $2,218,195.
13 http://www.onpower.com/pdf/EPRICostOfPowerProblems.pdf 14 http://www.icecalculator.com/ice/ 15 http://www.onpower.com/pdf/EPRICostOfPowerProblems.pdf
http://tdworld.com/distribution-management-systems/amr-improves-outage-management
http://www.sdge.com/newsroom/press-releases/2012-11-14/sdge-launches-advanced-outage-management-system-benefit-region http://www.silverspringnet.com/outage/pdfs/SilverSpring-Whitepaper-Outage.pdf
http://www.seattle.gov/light/ami/benefits.asp
Avista Corporation | Washington Advanced Metering Project – Business Case p. 12

Staff_PR_064 Attachment B Page 13 of 23
Each year, Avista dispatches field personnel to respond to electric outages that are
ultimately determined to be on the customer’s side of the meter. In these instances, the
Company’s facilities are working properly (there is power to the meter) and it is up to the
customer to contact a commercial electrician to investigate and repair their problem. This circumstance is referred to a “false positive.” With advanced metering, the customer
service person taking the outage call will be able to query the meter in question to
determine whether or not there is actually power to the meter, reducing the likelihood of a
false positive. The Company has estimated that having this capability will reduce the
incidence of false positives by 80%, resulting in an annual benefit of $396,967.
The Company also expects that the number of customer calls to report outages will be
reduced with advanced metering. This will result from more accurate automated outage
notification to customers. The annual benefit associated with the reduced number of calls
was estimated at $69,498. J. Energy Efficiency There are two principal areas of energy efficiency savings enabled by the deployment of
advanced meters, efficiency measures undertaken by the customer, and energy savings
associated with the utility’s management of the electric distribution system.
1. Customer Energy Efficiency
When customers have access to detailed and timely energy-use data they will be able to
better understand their energy use. And when coupled with utility-provided information
and education on energy consumption, customers will have new, advanced tools to undertake the structural and behavioral changes necessary to achieve their own personal energy conservation objectives.

Avista has estimated from its Pullman smart grid demonstration project, that
approximately 5 percent of its eligible customers took advantage of the opportunity to use an in-home device that provided them real-time information on their energy use. This rate of participation is similar to results reported elsewhere in the country16. In addition to the
rate of participation, customers who engaged with the real-time energy tools reduced
their use of electricity by 3 percent on average. These findings are reasonably consistent
with industry reports where the average electricity saved by each customer has ranged between 1 and 6 percent17. The Company used this information to estimate that its
http://www.fpl.com/energysmart/pdf/esf3.pdf http://www.greentechmedia.com/articles/read/pges-smart-grid-plans-for-shorter-power-outages
http://www.silverspringnet.com/article/accelerating-outage-restoration-with-smart-grid-technology/
http://energy.gov/articles/modernizing-grid-getting-more-out-america-s-energy-0 16 http://www.slideshare.net/breakingnews/unlocking-energy-efficiency-in-the-us-economy-1789726 http://www.bchydro.com/content/dam/BCHydro/customer-portal/documents/projects/smart-metering/smi-
program-business-case.pdf http://www.bchydro.com/content/dam/BCHydro/customer-portal/documents/projects/smart-metering/smi-program-business-case.pdf 17 http://www.slideshare.net/breakingnews/unlocking-energy-efficiency-in-the-us-economy-1789726 http://finance-commerce.com/2014/09/sustainable-reducing-energy-use-through-behavioral-science/ http://www.bchydro.com/content/dam/BCHydro/customer-portal/documents/projects/smart-metering/smi-
program-business-case.pdf
Avista Corporation | Washington Advanced Metering Project – Business Case p. 13

Staff_PR_064 Attachment B Page 14 of 23
Washington electric customers would save $491,882 in annual energy costs through the
deployment of advanced meters.

2. Distribution System Energy Efficiency The electric distribution system is designed to operate within a voltage range, which is
manually set for each neighborhood “feeder” line at a voltage regulator in the substation.
The types and the magnitude of electrical loads on a feeder (e.g. motors vs. lighting) are
constantly in flux, causing variation in the actual voltage level on that feeder over time.
Since it’s important that a minimum line voltage always be maintained, the set-point voltage will be conservatively set at a higher voltage level than is required much of the
time to provide an adequate buffer for the variation in loads. Since more electrical energy
is required to support higher line voltages, this results in some inefficiency in the use of
electricity at times when the line voltage is greater than the minimum required.
Recently, utilities have been able to deploy smart grid technology that allows them to
adjust the voltage on a feeder based on voltage readings taken from the distribution line
transformers along the feeder. This capability allows them to effectively reduce the
energy required to maintain the minimum line voltage. This strategy is known as
“conservation voltage reduction.” The approach uses a Distribution Management System application that receives voltage readings from the transformers, and sends voltage
control signals to the regulator in the substation in near real time.

The energy savings from conservation voltage reduction can be further optimized by
adding advanced meters that are equipped with voltage alarm capability. Now, instead of relying on voltage readings from the transformer, the actual voltage at the customer’s
premises can be monitored and those readings can be used to further reduce the feeder
voltage to meet the minimum level required.

Avista has experience with conservation voltage reduction through the implementation of two smart grid programs in Spokane and Pullman, Washington. By deploying advanced
metering with voltage alarming capability, the Company estimates it will be able to
further-lower the voltage on the distribution feeders (those equipped with conservation
voltage reduction), resulting in an annual energy savings estimated at 0.5% or 13,798,937
kWh. The estimated value of the annual energy savings to customers is $1,186,709.
K. Energy Theft and Unbilled Energy Usage Tampering or theft diversion occurs when a customer has purposefully altered the meter
so that power is consumed at the premises without being registered on the meter.
Advanced meters are equipped with tamper alarms that will automatically communicate with the utility in the event a person should attempt to circumvent the metering of energy.
In addition to the alarm capability, the utility can employ analytics to evaluate the
interval metering data to help identify potential theft of service far more accurately.
Using this theft-detection software helps the utility deploy field inspection personnel
http://www.intelligentutility.com/article/12/02/behavioral-approaches-energy-conservation-pay&utm_medium=eNL&utm_campaign=IU_DAILY2&utm_term=Original-Member
http://www.utilitydive.com/news/could-reducing-peak-demand-5-be-as-simple-as-asking/329102/
Avista Corporation | Washington Advanced Metering Project – Business Case p. 14

Staff_PR_064 Attachment B Page 15 of 23
more efficiently, further reducing the frequency of field service calls and customer
disruptions. In addition to helping curb theft of electricity, advanced metering also aids
the utility in isolating potential unbilled usage at a premise, as well as identifying slow,
failing and stopped meters.
The development of estimates for the value associated with energy theft is based on
Avista’s own experience, as well as a range of estimates from the utility industry. In most
literature, the range of opportunity is between 1 and 3 percent of total utility revenue. In
some business cases for advanced metering projects, the opportunity to address theft represents the single largest benefit among all those evaluated18. Avista believes the
savings opportunity is greater than what we experience today with our conventional
metering, but less than the industry averages. Accordingly, we have estimated the
opportunity at 0.4% of total revenue. Several research studies, business cases, and
anecdotal conversations with other utilities have supported this as a reasonable assumption19.
1. Theft Diversion
Currently, 80% of Avista’s theft cases are represented by instances where the customer
has turned on an inactive meter or has damaged the meter to the point where it stops reading. These circumstances can represent cases of complete diversion, where no usage
at all is registered on the meter, partial diversion, and intermittent diversion. By taking
advantage of meter alarming capability, coupled with powerful diagnostic analytics to
identify meter locations where diversion is likely to be occurring, the Company estimates
the potential benefit associated with identifying more of these diversion cases at $1,053,322.
2. Unbilled Usage
Unbilled usage occurs when an account has been inactivated, and there is no customer
associated with the account, but where energy usage is still occurring at the premise. This unbilled usage is difficult to initially identify with conventional metering, and
consequently, it can take several weeks to several months before each issue is resolved.
Advanced meters can either be disabled when an account is closed to prevent unbilled
usage, or the meter can trigger an alarm when usage is occurring during a period when
there is no active customer account. In either event, the amount of unbilled usage can either be eliminated or substantially reduced. Avista has estimated the annual net benefit
opportunity to be $235,081.

3. Slow or Failing Meters
These meters, as the name implies, simply under-represent the actual energy that is used at a premises. Depending on the degree of error, slow and failing meters can be very
18 Smart Metering & Infrastructure Program Business Case. BC Hydro, 2010. 19 http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture-Achieving-High-Performance-
with-Theft-Analytics.pdf
http://www.electricenergyonline.com/show_article.php?mag=&article=456 http://sites.energetics.com/madri/toolbox/pdfs/business_cases/sdge_supplemental.pdf http://nuwnotes1.nu.com/apps/clp/clpwebcontent.nsf/AR/appendices/$File/appendices.pdf

Avista Corporation | Washington Advanced Metering Project – Business Case p. 15

Staff_PR_064 Attachment B Page 16 of 23
difficult to isolate with conventional metering. The longer the time the meter is not
functioning properly the more complex the issue becomes to resolve. This can create a
significant under billing issue for customers, and it also places the under-billed revenue at
risk for recovery. For this analysis, Avista assumed it would identify one third more slow or failing meters through the deployment of advanced metering. The annual benefit is
estimated at $169,817.

4. Stopped Meters
When a meter appears to have stopped recording energy use, it is flagged for investigation by the Company’s meter shop personnel. Unfortunately, the great majority
of the time meters are reported as potentially stopped, there has simply been no use at the
premises and the meter is working properly. This is what’s known as a “false positive.”
Currently, Avista experiences these false positives in 85% of the cases investigated for
electric meters and 95% for natural gas meters. Reducing the number of field visits to investigate these false positives represents the core savings opportunity associated with
stopped meters. Avista predicts that better analytics enabled by advanced metering will
result in the reduction of false positives to a rate of 40% for both gas and electric meters.
The net annual benefit associated with the reduction in dispatched field personnel is
estimated at $205,924.
L. Billing Accuracy Because energy-use information is available from the advanced meter to the utility on a 5
– 15 minute interval, there is no longer a need to estimate bills related to manual meter
reading, or for the processes of opening, closing, or transferring utility service. The customer service representative can simply query the meter and receive an actual reading
of the metered usage. In addition to doing away with the need to estimate usage, the
energy-use information also equips the utility customer service representative with timely
and meaningful usage data to assist customers during billing inquiries. This increase in
accuracy and convenience is valued by customers.
Each year, Avista’s customer service representatives perform opens, closes and transfers
of service that total over 150,000 transactions in its Washington service area. Avista
expects its customer service representatives will save one minute on average for each of
these calls if they do not have to estimate the closing and/or opening read. The benefit from this reduction in call time is estimated at $266,658. The Company also estimates
that the time reduction in calls associated with customer billing inquiries will result in an
annual benefit of $99,756.

Avista employs billing analysts who review customer billing data each month to look for anomalies that might suggest a problem with an electric or natural gas meter. Typical
billing situations flagged by the analysts include abnormally high or low monthly bills.
Each unusual billing situation is evaluated by analysts who have to make a determination
whether to send a meter technician into the field to test the subject meter. Deployment of
advanced metering will eliminate much of the review process for these types of bills because diagnostic algorithms in the metering system, along with communications to the meter, will be able to better determine whether or not there is an actual problem with the
Avista Corporation | Washington Advanced Metering Project – Business Case p. 16
Staff_PR_064 Attachment B Page 17 of 23
meter. The benefit associated with a reduction in billing analysts’ time has been estimated
at $71,338.

Another area of benefit resulting from advanced metering is in the work process known as “rebilling.” There are a variety of instances that can lead to errors in the initial bill that
is sent to a customer, particularly arising from the need to estimate a monthly bill. Since
the customer service person will be able to acquire an actual reading from the meter in
near real time for an account in question, there will no longer be a need to estimate bills.
Avista estimates that 90% of the need for rebilling will be displaced, for an estimated annual benefit of $43,692.

M. Utility System Studies
Utility departments such as rates and engineering use electricity load information in
studies related to system planning, customer rates, reliability, and efficiency. Having information on the use patterns of the individual customer will allow Avista to better
understand how and when each customer interacts with its system. This more-detailed
information makes these particular studies easier and less expensive to perform and the
results more accurate. In addition to these benefits, the deployment of advanced metering
will reduce the cost of the annual meter testing program.
1. Retail Load Study
Every five years, the Company conducts a study of the electrical “demand” placed on the
system by each of its groups or classes of customers. This information is used as part of
the Company’s cost of service analysis developed for each of these customer classes. Currently, this demand data is collected at hourly intervals from a sample of customers by using approximately 700 specialized meters that have been placed in the field for this
purpose. Installing these meters, and moving them periodically, as well as providing them
with communication capability, is a substantial portion of the cost of these studies. With
the deployment of advanced metering, each customer meter will have the capability to record and communicate demand information, so there will no longer be a need to deploy specialized meters or pay their communication costs. The annualized benefit expected
from this change is estimated at $145,167.

2. Meter Shop Each year, Avista meter technicians field test a sample of meters to determine whether
the overall ‘population’ of meters in service is performing reasonably. The number of
meters in the sample tested each year is approximately 1,900. The sample size is
relatively large, in part, because over the years there have been several classes or
‘families’ of meters placed into service, and the sample must contain an adequate number from each of these meter families. With the deployment of advanced meters, there will be
a much-more uniform population of meters, meaning the sample size of meters to be
tested each year will be considerably smaller. The annual benefit estimated from the
reduced testing effort is $54,150.

Avista Corporation | Washington Advanced Metering Project – Business Case p. 17
Staff_PR_064 Attachment B Page 18 of 23
3. Engineering Studies
Utilities are experiencing new influences, such as the increasing penetration of electric
vehicles and customer-owned distributed generation, that are affecting the performance
and predictability of their electric distribution systems. These new dynamics can impact the reliability of conventional engineering models that have been used to evaluate system
performance and plan for future infrastructure investment. The data provided by
advanced metering will help engineers better understand the new ways customers are
interacting with the system, and to more accurately model current and future system
performance.

N. Washington Advanced Metering - Project Benefit Summary
Area of Improvement Quantified Annual Customer Benefit
Customer Experience

Access Interval Usage Data

Customer Home Network Interface

Energy Alerts

Customer Privacy
Future Opportunity for Benefits
Rate Options
Microgrids and Smart Cities
Data Analytics
Distributed Generation Meter Reading
Regular Reads $4,842,671
Special Reads $204,017 Remote Rapid Reconnect

Account Open, Close, Transfer

$1,728,042

Credit Connections

$1,193,060

Credit Collections $453,454

After Hours Fees

$104,040

Special Cases

$25,896

Reduced Customer Call Time $107,242
Reduced Lost Revenue $36,931 Outage Management
Customer Savings $2,218,195
Customer Side of Meter $396,967
Reduced Customer Calls $69,498 Energy Efficiency

Conservation Voltage Reduction

$1,186,709
Avista Corporation | Washington Advanced Metering Project – Business Case p. 18
Staff_PR_064 Attachment B Page 19 of 23
Customer Installed Measures $491,882 Energy Theft and Unbilled Usage
Theft Diversion $1,053,322
Unbilled Usage $235,081

Slow/Failing Meters

$169,817

Stopped Meters

$205,924
Billing Accuracy
Estimated Bills $266,658
Bill Inquiries $99,756
Billing Analysis $71,338
Rebilling $43,692 Utility Studies
Retail Load Studies $145,167
Meter Sampling $54,150
Engineering Studies Total

$15,403,509

IV. Preliminary Estimate of the Project Cost
Avista has developed an initial estimate of the cost of implementing the Washington
advanced metering project. The nature of this estimate should be considered preliminary
since the technical requirements for the various systems have not been completed, and since none of the vendors’ proposed configurations and final pricing for these systems is
presently known. The preliminary estimate of the capital cost totals $142.1 million, and
the annual operating costs are estimated at $5.2 million. Avista will continue to refine its
estimate of the program cost through the course of the project as more-specific
information is developed and available. The major component costs are described below followed by a summary table of the estimated costs associated with each component.
Additional details related to the estimated costs are available in supporting work papers.

A. Electric Meters Includes all types of electric meters, based on the quantity and unit cost of each type of meter.

B. Electric Meter Labor – Internal Cost
The expected Avista employee labor associated with the installation of commercial meters, providing advanced metering systems support, and performing meter re-installs. C. Electric Meter Labor – Contract Cost
Estimated contract labor cost for installing residential electric meters.

Avista Corporation | Washington Advanced Metering Project – Business Case p. 19
Staff_PR_064 Attachment B Page 20 of 23
D. Natural Gas Modules Expected cost of the register modules for installation on existing natural gas meters,
based on the quantity and cost of each module type.
E. Gas Module Labor – Contract Cost Estimated cost for the contract labor required to install the natural gas meter modules.

F. Head End Hardware
Includes the meter data collection computer hardware, meter security computer hardware, the meter data management system hardware, and information technology back office
equipment, data storage and central systems design.

G. Head End Software
Estimated cost of the software licenses for the meter data collection software, the data mapping tool, and the meter data management application.

H. Head End Labor – Contract and Internal Cost
Internal labor and vendor services for the installation of metering software, information
technology systems design, customer web integration, security systems design, integration of enterprise business applications, database development, project
management, and software packaging/testing.

I. Network Communications – Hardware
Includes meter data collectors for the field area network, network range extenders, communications repeaters, direct-connect cellular modules, and wireless mitigation. The
wireless mitigation work includes structure placement to support the network repeaters,
power line carrier substation equipment, the mobile collector system, satellite system, and
the network management system hardware. The actual cost of these systems can vary
substantially based on the ultimate technology selected.
J. Network Communications – Software Estimate of the software license cost for the network management system for the field
area network.
K. Network Communications – Labor Includes the cost of installation of the meter data collector for the field area network and
the labor portion of the wireless mitigation work.

L. Corporate Communications Estimate of the cost to develop and distribute a range of communication materials for at
least three educational packages that will be provided to customers during the course of
the project.

Avista Corporation | Washington Advanced Metering Project – Business Case p. 20
Staff_PR_064 Attachment B Page 21 of 23
M. Washington Advanced Metering - Project Cost Summary
Project Components Investment Annual Maintenance
Electric Meters
$33,830,016

Electric Meter Labor - Internal $3,389,939

Electric Meter Labor - Contract $6,815,950

Natural Gas Modules

$8,443,323

Gas Module Labor - Contract
$4,261,978

Head End Hardware

$4,922,650

Head End Software

$859,650

Head End Labor - Contract & Internal $9,075,926

Head End Maintenance Service

$2,096,258

Network Communications - Hardware $26,152,770

Network Communications - Software $3,015,100

Software Maintenance Support
$484,990

Network Communications - Labor $29,268,732

Avista Operating Costs

$2,609,815

Corporate Communications
$5,500,000

AFUDC

$6,591,695

Total

$142,127,727

$5,191,063

Avista Corporation | Washington Advanced Metering Project – Business Case p. 21
Staff_PR_064 Attachment B Page 22 of 23
V. Preliminary Deployment Schedule

Avista will continue having discussions with meter and other product vendors and will
complete the development of technical requirements for the advanced metering system.
The Company will develop requests for proposals for metering system vendors and move forward with the evaluations and selection of a system to be implemented. In addition to making the meter system selection, Avista will begin the acquisition of needed computer
servers, software applications and security systems in 2015. The installation of new
digital meters is slated to begin in 2016. At the same time, Avista will be installing the
needed communications infrastructure and performing the work of systems integration. Meter installs will continue in 2017 with plans to complete residential meters in 2018. Final installations of communications infrastructure will also be completed in 2018. The
installation of commercial meters will continue into 2019, with plans to complete the
advanced metering project in 2020.

Avista Corporation | Washington Advanced Metering Project – Business Case p. 22
Staff_PR_064 Attachment B Page 23 of 23