Kentucky Greenlights Large-Scale Conversion Project

Finding that the operational benefits from the move would clearly outweigh project costs, the Kentucky Public Service Commission has authorized a combined electric and natural gas utility, Duke Energy Kentucky, Inc., to begin replacing and upgrading all of its existing metering equipment. Under a settlement adopted by the commission, which modified the utility's original plan for installing advanced metering infrastructure (AMI) throughout its territory, Duke Kentucky is to provide different types of meters for its customers, depending on whether they are electric-only, gas-only, or both electric and gas ratepayers. The changes to the company's initial proposal had been prompted by certain objections brought forth by the state attorney general (AG). 

As stipulated to by the parties, the utility will provide its 60,500 electric-only customers with state-of-the-art digital smart meters specific to electric service. The company's 82,500 combination electric and natural gas customers will receive both the electric smart meter and a separate module on their gas meter that will relay gas usage data to the electric AMI. However, for those customers taking natural gas service alone, an automated meter reading (AMR) technology will be utilized instead. 

The meter project extends not only to the replacement of older analog metering systems, but also to "first generation" smart meters that had been deployed several years ago pursuant to a pilot project. The utility explained that it had discovered that the earlier iterations of AMI had certain technical limitations because they communicated with a centraloffice by sending out signals over power lines. But the new AMI equipment will communicate via radio transmitters instead. 

In reviewing the proffered settlement, the commission related that the AG had taken issue with certain aspects of the utility's AMI plan, including its preferred approach to accounting for the undepreciated value of the replaced meters. The commission commended the parties for reaching an accord thereto, which allows the utility to track program costs and create a regulatory asset for the premature retirement of such metering equipment. 

The agreement provides that in its next general rate case, Duke Kentucky is to incorporate into its revenue requirement calculations a 15-year period of amortization for the retired meter costs, but without carrying charges. The company stated that it expects to file a new rate case by the end of 2019. 

The commission noted that the 15-year recovery period established in the settlement coincides with the 15-year useful life assigned to the new gas modules. Although the utility had advocated for a depreciable life of only nine years for the gas meters, the commission rejected that schedule, explaining that it was far too short given numerous industry estimates for lives twice that long. 

The commission similarly denied a proposal floated by Duke Kentucky that it be permitted to stop recording depreciation on its existing meters once it obtained final approval of the AMI project. The utility alleged that such an approach was required under accounting rules governing the impairment of assets. 

But the commission found that a meter still functional and still being used in collecting a customer's usage data could not be considered impaired. To the contrary, the commission said, such equipment remains used and useful until it is actually taken out of service. 

Remarking that it has approved a number of other meter replacement programs around the state, the commission said it was unaware of any other jurisdictional utility that had been required to cease depreciating their meters upon mere approval of an AMI project, prior to an existing meter being replaced by a new one. It thus ruled that the company should continue to depreciate its meters until they are removed from service, with the company making "all reasonable efforts to mitigate the amount of the regulatory asset due to the stranded costs." 

Turning to other components of the stipulation, the commission acknowledged that the agreement includes a provision requiring Duke Kentucky to file a separate application for a pilot peak time rebate tariff as part of a future demand-side management (DSM) filing. However, the commission told the utility that it was reserving judgment on that term at the present time. Instead, the commission said, it intends to evaluate the merits of the tariff only after it is actually submitted. 

On a related matter, the commission voiced concern about the rising number of utility-sponsored DSM programs and associated cost increases borne by ratepayers, especially those who do not participate in the programs. As a result, the commission informed the company that it will be more carefully scrutinizing all future DSM filings, with a particular emphasis on reviewing the costs, benefits, and rate impacts of each individual program and measure. 

Another key element of the stipulation discussed by the commission pertained to what it described as an important consumer protection - that being a customer opt-out feature. With respect to electric service customers, the opt-out tariff sets forth a one-time initial set-up fee of $100 and a $25 per month ongoing charge for manual meter reading. However, the $100 charge will be waived for customers who notify the company of their desire to opt out before the new AMI is actually installed. The commission observed that there is no opt-out option, nor associated fees of course, for customers who are metered through an AMR rather than an AMI system. 

In approving the meter replacement program as a whole, the commission pointed out that because the electro-mechanical meters in use now are no longer being manufactured, the utility would be unable to service or repair most of its existing meters. Plus, the commission commented, those old analog meters are limited in their capabilities with respect to data collection and communication and often are located inside a customer's premises. 

It therefore concurred with Duke Kentucky that the proposed AMI project would be a cost-effective solution to looming metering problems. The commission added that the new equipment, although requiring an initial upfront investment, over the long run will produce cost savings, in part by eliminating the costs and resources associated with utility workers having to enter customer homes on a monthly basis to conduct meter readings. 

The commission reported that a cost/benefit analysis performed by the utility indicated that its AMI replacement strategy would yield a net benefit of more than $7.4 million over the next 17 years. Re Duke Energy Kentucky, Inc., Case No. 2016-00152, May 25, 2017 (Ky.P.S.C.).