“OPT-OUT” ALTERNATIVE COSTS & PROPOSAL Advanced Smart Meter Alternatives, Respective Associated Costs, and Cost Recovery

Proposal

PREPARED FOR

Southern Maryland Electric Cooperative
APRIL 2013

Southern Maryland Electric Cooperative | “OPT-OUT” ALTERNATIVE COSTS & PROPOSAL

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Table of Contents
Executive Summary ................................................................................................................................ 1-4 1.1 “Opt-Out” Scenario Summary of Results and Reccomendations ........................................... 1-4 1.2 Proposal Key Assumptions .................................................................................................................. 1-6 1.3 Recommended “Opt-Out” Non-Standard Meter Installation.................................................. 1-6 2.0 SMECO’S “Opt-Out” Proposal............................................................................................................... 2-8 2.1 Impact Of An “Opt-Out” Option ........................................................................................................ 2-8 2.1.1 What “Opt-Out” Means to SMECO ............................................................................... 2-8 2.1.2 What “Opt-Out” Means to SMECO’s Customer-Members .................................. 2-9 2.2 SMECO’s “Opt-OUt” Meter Scenarios: Descriptions & Disadvantages ............................... 2-9 2.2.1 Scenario 1: Analog Meter Installation......................................................................... 2-9 2.2.2 Scenario 2: Digital Meter Installation ........................................................................ 2-10 2.2.3 Scenario 3: ERT/AMR Meter Installation.................................................................. 2-10 2.2.4 Scenario 4: Interval Data/Modem Meter (Telephone Line – POTS) ................ 2-10 2.2.5 Scenario 5: Smart Meter: Limited Frequency ........................................................ 2-12 2.2.6 Scenario 6: Probe Digital Interval Meter .................................................................. 2-12 2.3 Approach to Estimate “Opt-Out” Costs Incurred by Scenario............................................... 2-13 3.0 SMECO’s Proposed “Opt-Out” Service Charges ..............................................................................3-14 3.1 Services Charges for An “Opt-Out” Option With A Legacy Meter - Scenario 1: Analog, Scenario 2: Digital, and Scenario 3: ERT/AMR ............................................................ 3-14 3.2 Services Charges for An “Opt-Out” Option With Scenario 4: Interval Data/Modem Meter (Telephone Line-POTs) .............................................................................. 3-15 3.3 Service Charges for An “Opt-Out” Option With Scenario 5: Smart Meter: Limited Frequency ............................................................................................................................... 3-16 3.4 Service Charges for An “Opt-Out” Option With Scenario 6: Probe A Digital Interval Meter ....................................................................................................................................... 3-16 4.0 Impact to SMECO Business Operations With A No-Charge “Opt-Out” Option .........................4-18 4.1 Impact of A No Charge “Opt-Out” Option With A Legacy Meter – Scenario 1: Analog, Scenaro 2: Digital, and Scenario 3: ERT/AMR ........................................................... 4-18 4.2 Impact of A No Charge “Opt-Out” Option With Scenario 4: Interval Data/Modem Meter (Telephone Line-POTS) .............................................................................. 4-20 4.3 Impact of A No Charge “Opt-Out” Option With Scenario 5: Smart Meter: Limited Frequency ............................................................................................................................... 4-21 4.4 Impact of A No Charge “Opt-Out” Option With Scenario 6: Probe A Digital Interval Meter ....................................................................................................................................... 4-23 5.0 Conclusion and Recommended “Opt-Out” Non-Standard Meter Installation ..........................5-26 Appendix 1-1: Review of U.S. “Opt-Out” Programs.....................................................................................5-27 Appendix 1-2: Decreased Services for “Opt-Out” Customer-Members ...................................................5-33 Appendix 1-3: Overview of “Opt-Out” Incurred Costs by Scenario ..........................................................5-34 1.0

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Table 1: Upfront & Monthly Costs for Scenario 1: Analog ................................. 5-34 Table 2: Upfront & Monthly Costs for Scenario 2: Digital .................................. 5-34 Table 3: Upfront & Monthly Costs for Scenario 3: ERT/AMR ............................ 5-34 Table 4: Upfront & Monthly Costs for Scenario 4: Interval Data/Modem Meter (Telephone Line-POTS) ........................................................... 5-34 Table 5: Upfront & Monthly Costs for Scenario 5: Smart Meter: Limited Frequency ............................................................................................................ 5-34

Table 6: Upfront & Monthly Costs for Scenario 6: Probe Digital Interval Meter .................................................................................................................... 5-34 Costs Incurred for Scenario 1: Analog .......................................................................................... 5-35 Costs Incurred for Scenario 2: Digital ........................................................................................... 5-36 Costs Incurred for Scenario 3: ERT/AMR ..................................................................................... 5-37 Costs Incurred for Scenario 4: Interval Data/Modem Meter (Telephone LinePOTS)..................................................................................................................................... 5-38 Costs Incurred for Scenario 5: Smart Meter: Limited Frequency ....................................... 5-39 Costs Incurred for Scenario 6: Probe Digital Interval Meter ................................................. 5-40

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Southern Maryland Electric Cooperative | “OPT-OUT” ALTERNATIVE COSTS & PROPOSAL

1.0 Executive Summary
Southern Maryland Electric Cooperative (SMECO) is dedicated to providing its customer-members with safe, reliable, competitively priced electricity service. SMECO also wants to ensure that its customermembers have access to new tools and information, which will allow them to take greater control of their energy use. Consistent with and in support of its mission, on June 13, 2012, SMECO proposed to implement an advanced metering infrastructure (AMI) system for its entire service territory (approximately 152,000 customer meters). This initiative builds on SMECO’s AMI Pilot effort, a step authorized by the Public Service Commission (PSC) on December 21, 20091. SMECO’s AMI Pilot commenced March 2011 and concluded March 2012. SMECO has submitted its conclusions from the AMI Pilot including a detail analysis of the business benefits to the PSC. SMECO is currently awaiting PSC approval before proceeding with system-wide AMI implementation. On January 7, 2013, the Commission concluded that the public interest requires the Companies2 to offer an additional option related to the installation of smart meters in their homes (Order No. 85294 and respective Errata). As a result, the Commission ordered the Companies to submit to the Commission proposals regarding a) overall costs associated with allowing customers to retain their current legacy3 meter, and b) proposals regarding costs related to offering customers different RF-free, or RFminimizing options, related to the installation of their smart meters. Additionally, the Commission asked the Companies to provide this information scaled for different levels of customer participation. “Opt-out” is the term used to describe a customer’s request to decline the installation of a smart meter as well as to forego the ability to receive the respective Advanced Metering Infrastructure (AMI) benefits. In addition, the “opt-out” alternatives incur operational and maintenance costs; and ultimately undermines the value of total AMI benefits enabled through installation of a smart meter. This document describes SMECO’s “Opt-Out” Proposal including overall costs associated with allowing customer-members to retain their current legacy meter and costs related to offering customermembers different RF-free or RF-minimizing options related to the installation of smart meters. The proposal includes scaled results for three potential levels of customer-member ‘opt-out” participation; e.g. 1%, 2% and 5%, respectively.

1.1 “OPT-OUT” SCENARIO SUMMARY OF RESULTS AND RECCOMENDATIONS
SMECO conducted a detailed cost capture exercise to identify upfront and monthly costs incurred by the cooperative should customer-members choose an “opt-out” alternative. The cost capture exercise collected the full cost should a customer choose to opt-out of an AMI meter installation. For customers

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PSC Mail Log (ML) #119060, DS-302 Order No. 85294 defined “the Companies” to include Baltimore Gas and Electric Company, Potomac Electric Power Company, and Delmarva Power and Ligth Company.While SMECO was not required to follow that Order’s directives, the Commission invited SMECO “to participate in the future proceedings directed” by Order No. 85294. 3 SMECO’s definition of a “legacy meter” is consistent with the utilities REQUEST FOR CLARIFICATION AND EXPEDITED CONSIDERATION which states “the Companies may have analog m eters with remote reading devices (also known as ERT modules), analog meters without ERT, and digital meters with and without ERT capability.” The Commissions clarification Order No. 85371 confirms the Commission “intended to require the Companies to provide cost information on the customers retaining their current legacy meter, whether such meter is analog or not.”
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who choose to opt-out, such choice would require the use of a non-AMI4 additional metering solution that will raise significant cost to all customer members. The Commission’s Order No. 85294 recognizes the existence of potential costs associated with providing and maintaining multiple meter and meter reading solutions in order to provide customers an opt-out option. To better determine the cost considerations the Commission has requested additional information regarding the costs associated with opt-out solutions.5 Detailed cost estimates have been developed in this costs analysis to cover areas of potential impact for an “opt-out” option. The viability and overview costs associated with non-standard metering alternatives is discussed in section 2.5 Overview of Opt-Out Costs Incurred. The cost estimates associated with each of SMECO’s six opt-out scenarios are summarized below by three opt-out participation levels, 1%, 2%, and 5% respectively. The results show both an upfront one-time, and a recurring monthly, cost are fairly uniform for Scenarios 1, 2, and 3. For Scenario 4, the upfront one-time fees are naturally higher since costs related to establishing and maintaining this alternative is substantial. Under Scenario 5, the monthly costs are reduced since the AMI meter would transmit information at a less frequent basis; thus manual meter reading and other associated costs are not applicable as they would be in scenarios 1 through 3, due to the installation of the AMI meter. Scenario 6 offers an RF-free alternative for the capture of interval data; however, up-front costs and monthly costs are substantial. Table 1-1 SMECO “Opt-Out” Scenario Summary by Participation Level
Upfront One-Time $105.32 $105.32 $105.32 $1,251.70 $93.92 $427.12 Monthly $34.94 $34.94 $34.94 $30.47 $1.37 $65.85

1% "Opt-Out" Participation Scenario 1 - Analog Scenario 2 - Digital Scenario 3 - ERT/AMR Scenario 4 - Interval Data/Modem Meter (Telephone Line -POTs) Scenario 5 - Smart Meter: Limited Frequency Scenario 6 - Probe a Digital Interval Meter

2% "Opt-Out" Participation Scenario 1 - Analog Scenario 2 - Digital Scenario 3 - ERT/AMR Scenario 4 - Interval Data/Modem Meter (Telephone Line -POTS) Scenario 5 - Smart Meter: Limited Frequency Scenario 6 - Probe a Digital Interval Meter

Upfront One-Time $84.03 $84.03 $84.03 $1,226.76 $90.84 $387.44

Monthly $31.68 $31.68 $31.68 $27.06 $0.68 $62.25

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SMECO’s intention is to install an AMI meter for all customer-member locations. Other types of required meter installations would be considered non-standard meter installations. 5 Commission Order 9294 “on or before July 1, 2013, the Companies shall submit to the Commission their proposals regarding a) the overall additional costs associated with allowing customers to retain their current analog meter, b) their proposals regarding cost recovery of these additional costs from customers, and c) their proposals for recovery of costs related to offering customers different RF free or RF-minimizing options related to the installation of their smart meters. Additionally, we ask the Companies to provide this information scaled for different levels of customer participation”
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Southern Maryland Electric Cooperative | “OPT-OUT” ALTERNATIVE COSTS & PROPOSAL

5% "Opt-Out" Participation Scenario 1 - Analog Scenario 2 - Digital Scenario 3 - ERT/AMR Scenario 4 - Interval Data/Modem Meter (Telephone Line -POTs) Scenario 5 - Smart Meter: Limited Frequency Scenario 6 - Probe a Digital Interval Meter

Upfront One-Time $71.27 $71.27 $71.27 $1,211.80 $88.99 $363.63

Monthly $29.73 $29.73 $29.73 $25.01 $0.27 $60.10

1.2 PROPOSAL KEY ASSUMPTIONS
In support of this proposal, SMECO identified the following key assumptions:  Only residential customer-members will qualify for the “opt-out” program6  Each manual meter read requires a truck roll7  Legacy meter definition is consistent with the utilities REQUEST FOR CLARIFICATION AND EXPEDITED CONSIDERATION (see footnote 2)  Legacy meters removed during the AMI deployment will be refurbished and tested for use in the OptOut program

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RECOMMENDED “OPT-OUT” NON-STANDARD METER INSTALLATION

SMECO recommends customer-members select the “opt-out” option to have a digital ERT/AMR (Scenario 3) meter installed. SMECO agrees the additional option to “opt-out” of the installation of AMI meters should bear the extra costs. SMECO has reviewed the experiences of other utility’s opt-out programs8. “Opt-out” options are being adopted by less than 2% of customers9 charged with the appropriate costs of having a nonstandard meter installed. Because of limited participation levels, SMECO is recommending the ERT/AMR installation “opt-out” option for all customers-members electing to “opt-out” of the installation of a standard meter. This technology has been used successfully at SMECO since 1997.10 The technology meets the requirement of a RF minimizing solution, meets SMECO’s standards for maintainig customer-member privacy and provides an effective meter and meter reading solution for the utility. Unlike the analog meters, which are no longer commercially available, ERT meters are still a viable commercial ready metering solution. SMECO will not offer customers choosing to “opt-out” of AMI the ability to choose a TOU rate structure. TOU rate structures will only be offered to customers that have SMECO’s fully functional AMI technology
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The “Opt-Out” Customer Base is derived from total number of residential customers (139,163 as of Jan. 2013). Economies of scale have been applied in the calculation of the truck roll cost. These manual meter readings will be incorporated with other system maintenance activities [where possible]. 8 Refer to Appendix 1-1 Industry Study 9 See Appendix 1-1 Industry Study, table Current Examples of “Opt-Out” Participation Levels 10 The Encoder Receiver Transmitter (ERT) technology has been used by SMECO beginning in 1997. The current commercially available production system consists of an ERT module installed in a digital meter. This combination is in the electric industry known as an ERT meter. An ERT meter is a one-way RF device that only transmits the meter read upon receiving a wakeup call from the collection unit. The unit remains dormant until the wakeup call is received. The wakeup call is manually initiated by the meter reader once in close proximity to the meter. The typical ERT meter has a range of approximately 800 yards.
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Southern Maryland Electric Cooperative | “OPT-OUT” ALTERNATIVE COSTS & PROPOSAL

meters installed. Fully functional AMI meters have no limits on the RF transmission rate. If required by the Commission to offer a TOU rate for “opt-out” customers, the customer will have an RF free, interval data meter installed. The interval data will be obtained by physically visiting the meter on a monthly basis, manually connecting a read device to the meter, and performing a download of the interval data to the back office systems.

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2.0 SMECO’S “Opt-Out” Proposal
This section describes SMECO’s “Opt-Out” Proposal in accordance to the Commission’s Order 85294 and respective Errata, ordering the submission of a proposal regarding a) the overall additional costs associated with allowing customer to retain their current legacy meter, b) their proposal regarding cost recovery of these additional costs from customers, and c) their proposals for recovery of costs related to offering customer different RF-free or RF-minimizing options related to the installation of their smart meters. Additionally, the Commission ordered the Companies to provide this information scaled for different levels of customer participation.

2.1 IMPACT OF AN “OPT-OUT” OPTION
This section describes the impact of an “opt-out” option to both SMECO and its customers-members

2.1.1 What “Opt-Out” Means to SMECO
An “opt-out” option at SMECO will require the utility to maintain software, hardware, labor, and equipment for the management and maintenance of dual business processes supporting both the standard and non-standard metering applications. SMECO will be required to maintain dual informational programs, dual outage messaging, and different customer-member rate structures in support of customer-members choosing to “opt-out” of an AMI meter installation. SMECO agrees with the Commission’s perspective that customers who are provided with an additional option to “opt-out” of the installation of smart meters on their homes, should bear the extra costs associated with such customer choice. With any level of “opt-out” participation, SMECO’s benefits will be reduced and will continue to be diminished as opt-out participation levels increase. Erosion of AMI benefits attributable to “opt-out” include, but are not limited to the following:  Reduction of the operational savings (I.e. meter reading labor, respective truck rolls for system maintenance activities, maintenance of equipment, maintenance of vehicles and fuel costs).  Potential reduction in the supply-side savings due to less participation in the Demand Response Programs, leading to the potential for reduced energy and demand savings, which leads to lower capacity and price mitigation benefit. Through this analysis, SMECO determined that impacts to supply-side savings are minimal at the 1%, 2% and 5% participation levels, resulting in little to no impact to demand response. However, it is noted that participation levels beyond 5% can exhibit a greater impact on the supply-side savings, with increasing impact as opt-out participation increases.  Potential higher project costs attributable to greater customer-member communication needs (e.g., development of additional educational materials for opt-out communications).  Reduction in opportunity for SMECO to fully realize improved, outage and power quality monitoring benefits.  Reduction in opportunity for SMECO to optimize benefits associated with the more effective theft of service monitoring.

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2.1.2 What “Opt-Out” Means to SMECO’s Customer-Members
Customer-members electing to participate in an “opt-out” program potentially forego the many benefits and functionalities obtained from the installation of AMI meters, including, but not limited to11:  higher quality of service  improved outage detection/restoration  monitoring of voltage to mitigate spikes, interruptions, and conditions where abnormal levels could affect customer service  remote move-in/move-out functionality  participation in Demand Response Programs  customer-member energy usage advisory services

2.2 SMECO’S “OPT-OUT” METER SCENARIOS: DESCRIPTIONS & DISADVANTAGES
SMECO’s approach to identifying “opt-out” scenario options to the installation of smart meters was based on the premise that the alternatives were technically viable solutions based on current meter and meter support system functionality. The alternatives are described below and listed by scenarios. In scenarios where a manual meter read is required, SMECO’s intends to use SMECO employees for all future system maintenance activities including meter reading, if required.12 The respective disadvantages are included within each scenario.

2.2.1 Scenario 1: Analog Meter Installation
Scenario 1 involves the installation of an analog meter. Analog meters are no longer commercially available. This requires the replacement of the existing meter with a tested analog meter. Due to the lack of available replacement components the refurbishment of analog meters is not an option. In addition, Scenario 1 entails a visit to the premises for all ongoing meter reading, system maintenance and business operation activities like move in/out. Scenario 1 requires SMECO to manually retrieve monthly reads from the analog meter for billing by performing a truck roll to each meter. Meter reading is no longer a contiguous function and will potentially change month to month based on customer-member “opt-out” participation. Disadvantages of this alternative are analog meters do not provide on-demand reads, notification of power status, nor does it supply interval data information in support of future time-based rates. SMECO will be unable to retire its current meter reading system, perform non-contiguous meter reads, and it presents the added complexity of managing parallel smart meter and legacy meter reading processes.

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Refer to Appendix 1-3 It is worth noting that Meter reading workforce has already been redeployed to other duties.

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2.2.2 Scenario 2: Digital Meter Installation
Scenario 2 involves the installation of a digital (Non-Radio Frequency) meter with no interval data measurement capability. Scenario 2 results in the replacement of a customer-member’s existing meter with a digital meter. Scenario 2 requires SMECO to manually retrieve monthly reads from the digital meter for billing by performing a truck roll to each meter. Again, meter reading is no longer a contiguous function and will potentially change month to month based on customer-member “opt-out” participation. Disadvantages of this alternative are digital (non-AMI) meters do not provide on-demand reads, notification of power status, nor does it supply interval data information in support of time-based rates. SMECO will be unable to retire the current meter reading system, and it presents the added complexity of managing parallel smart meter and legacy meter reading processes. SMECO will be required to operate parallel meter reading systems to support this function.

2.2.3 Scenario 3: ERT/AMR Meter Installation
Scenario 3 involves the installation of an Encoder Received Transmitter (ERT)/Automatic Meter Reading (AMR) meter. Scenario 3 results in the replacement of a customer-member’s existing meter with a tested and refurbished ERT/AMR meter.13 Scenario 3 requires SMECO to manually retrieve monthly reads (via drive-by) using an ERT/AMR meter. For the ERT, the advantages of this alternative are that the monthly retrieval of meter data can be obtained by performing a drive-by read. This does result in an RF-minimizing alternative due to the AMR technology requires a relatively local “wake up” call before the meter will transmit the meter read to the collection device. Disadvantages of this alternative are digital ERT/AMR meters do not provide on-demand reads, notification of power status, nor does it supply interval data information in support of time-based rates. SMECO will be unable to retire the meter reading system, and it presents the added complexity of managing parallel smart meter and legacy meter reading processes.

2.2.4 Scenario 4: Interval Data/Modem Meter (Telephone Line – POTS)
Scenario 4 involves the installation of an Interval Data/Modem meter with the feature set of an interval data recorder and modem included with the purchase of an advanced meter. The cost of the meter required for this solution is $767 based on SMECO’s last Invoice. The interval recorder allows the meter to capture and store interval data and communicate the information through the use of a modem connected to a dedicated, Plain Old Telephone (POTS) line that SMECO would have installed to support this meter reading function.14 The system does provide remote daily interval meter reads without the use RF. However, the customer would be required to pay all costs associated with the installation and maintenance of this additional phone service or an AMI meter would be installed.

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SMECO has currently has 7000 TS1 (“turtle”) meters in the field; however this is no longer a supportable solution. 14 SMECO currently uses the POTS lines for reading interval data for commercial customers with installations that exceed 500 kW in capacity.
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SMECO, through previous experience with hundreds of similar telephone based meters, has found the use of both shared and dedicated telephone lines as a method of reading mass amounts of interval data meters for residential customers as unreliable and unsupportable due to problems with the meters and problems with the POTS lines. Problems with the meters included:  Meter not communicating as scheduled  Meter modem failures  Meters receiving the wrong call schedule  Meter not calling as expected Problems with shared phone circuits included:  Customer-member not paying for the phone service  Customer-member moves and the phone line disconnected  Customer-member and phone company technicians disconnecting the phone line to the meter  Intermittent phone service experience by the customer results in POTS disconnected  Corrosion in the connection circuits  Wires cut due to home and building repairs From April 2002 through May 2004, SMECO had telephone lines connected to 412 data recorders for the purposes of reading interval data over the telephone lines. During this timeframe, a total of 1491 field activities were issued in support of reading meters through the POTS line. Of the 1491 field activities issued, 1375 field activities were issued in support of customer shared POTS lines. Field crews were required to travel to each site and perform troubleshooting to determine the reason the collection system did not receive the information. Troubleshooting for the field technician included making the determination if the bulleted reasons given above were the reason the meter did not communicate as expected. These meters were read over the POTS lines on a monthly basis to minimize the traffic on the customer-member’s phone service. Problems may occur with dedicated phone circuits for reading mass amounts of residential meters. SMECO would be required to perform a detailed analysis on the limitations of the software and the equipment required to adequately support reading the interval data information from a large amount of meters. Dedicated POTS lines are more reliable than shared lines but still would require careful coordination and specialized training for the installation and maintenance of this system. The software used has a limited set of validation parameters. Meter alarms and data errors are not communicated until the meter data is downloaded and requires manual intervention to review and

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accept before a download to the billing system can occur.15. The meters also require unique call-in schedules to be programmed in the meters depending on the number of meters and the call-in frequency . Each meter requires 3 to 5 minutes of time each call, or download, to obtain the interval data from the meter. Any interruption in phone service during this timeframe will disconnect the phone service from the meter. The meter will then follow a predetermined retry sequence before becoming dormant for a period, after which it will perform another sequence.

2.2.5 Scenario 5: Smart Meter: Limited Frequency
Scenario 5 involves the installation of an AMI meter with a limited radio transmission schedule. Scenario 5 results in the replacement of a customer-member’s existing meter with an AMI meter in which SMECO reconfigures the communication module so that it only transmits on a limited schedule. Scenario 5 requires SMECO to reprogram the AMI meter to transmit meter reading data on a reduced schedule. The advantages of this alternative are that meter reads are possible with reduced RF, yet SMECO and the customer-member can leverage the AMI system for remote connectivity functionality, movein/move-out functionality and outage management capabilities. The disadvantages of this alternative are that it requires SMECO to reconfigure the AMI meter in a different way than the standard meter, and thus actively track the meters assigned to these customermembers. A limitation of this scenario is that customer-members would not have access to daily interval data and web presentment, and have limited opportunities to participate in demand response and time-based rate opportunities due to the reduce transmission rate.

2.2.6 Scenario 6: Probe Digital Interval Meter
Scenario 6 involves the installation of a digital meter with additional functionality to allow it to capture interval data. Scenario 6 results in the replacement of a customer-member’s existing meter with a tested and, when necessary, refurbished load research meter. In addition, Scenario 6 entails a premises visit to assess the condition of customer-member owned facilities for safety and tamper purposes. Scenario 6 requires SMECO to manually retrieve/probe monthly interval data reads from the digital interval meter via a probing processes. No “remote” data retrieval capability is provided. The advantages of this alternative are that daily interval meter reads, retrieved monthly, for these meters is possible without use of RF. SMECO can leverage existing software and hardware technology to perform these functions. The disadvantages to this alternative are that the probing processes are more costly. This alternative requires that a SMECO technician take additional time to visit and manually probe each meter for interval data. Customer-members will not benefit from the remote-connection functionality or benefit from access to near real-time data.

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Currently SMECO expends 3 – 5 hours monthly on the first day of the month reviewing and processing data for billing accounts rated at 500 kW and above. Typical problems include missing interval data, meters not reporting, or data edits due to zero intervals or power outages. Meters not reporting data require a truck roll to investigate the issue and capture the interval data manually to be used for billing.
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2.3

APPROACH TO ESTIMATE “OPT-OUT” COSTS INCURRED BY SCENARIO

The detailed cost estimates were grouped into categories to develop two separate charges, namely . the Upfront One-Time Costs and Monthly (on-going) costs.16 For the Upfront one-time cost, SMECO proposes the customer-member pay this fee upon request to “opt-out”. The monthly (on-going) charges would be in addition to a customer-member’s Basic Service Charge, as allowed under the current tariffs.  Upfront One-Time Costs: Refers to the upfront costs that are reflected on a cost per customermember basis for the specific scenario. These costs are the identifiable upfront one-time costs and include: the non-AMI meter Installation costs, non-AMI meter reading equipment , removal of nonAMI meter (exit fee), non-AMI meter storage and inventory costs, and the additional customermember communications costs. The costs also include the cost of returning SMECO’s AMI network back to the standard condition after the customer-member no longer requires the “opt-out” services.  Monthly Costs (on-going): Refers to the identifiable on-going cost estimates that include the incremental cost of the non-AMI meter system for the specific scenario. These costs also include the incremental non-AMI meter costs that have been defined in the respective scenario. These costs include: non-AMI meter reads (based on a fully loaded truck roll cost which includes fringe benefits and administrative and general (A&G) overhead), maintaining legacy meter reading system and annual maintenance costs, and the cost of running parallel business processes post-AMI deployment.

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Refer to Appendix 1-3 for detailed breakdown of costs.
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3.0 SMECO’s Proposed “Opt-Out” Service Charges
In this section, SMECO presents service charges incurred by customer-members who elect to “opt-out”. The section is divided into four sub-sections which detail service charges for each “opt-out” scenario and also at the three estimated levels of “opt-out” participation; 1%, 2% and 5%, respectively.

3.1 SERVICES CHARGES FOR AN “OPT-OUT” OPTION WITH A LEGACY METER SCENARIO 1: ANALOG, SCENARIO 2: DIGITAL, AND SCENARIO 3: ERT/AMR
This section describes SMECO’s cost analysis for an “opt-out” option with either an Analog, Digital or ERT/AMR meter. SMECO has consolidated the results of these three scenarios due to the following reasons:  SMECO did not observe any differences in terms of required system costs between the three proposed “opt-out” options  “Opt-out” customer-members would be required to incur identical service charges under all three options Table 3-1a depicts the upfront one-time and monthly costs incurred by customer-members who “optout” of the AMI meter. As illustrated in Table 3-1a, as participation increases in the "opt-out" program, an individual customer-member’s upfront and monthly “opt-out” service charges decrease. Under these scenarios a customer-member would not be charged for the non-AMI meter.17The largest components of the upfront one-time charge are the two truck rolls required to install, and later, to remove (exit fee) the non-standard meters (total cost of $53.58). In terms of the monthly fee a customer-member will expect to incur a fixed meter read fee of $26.79 (fully loaded truck roll cost). SMECO does not expect to be able to offer a customer-member a decreased meter read fee as its service territory is vast and customer-member “opt-out” participation is not static month to month. In order to service the noncontiguous service territory, SMECO will have to utilize a similar process to its current check read services. The fees below are not meant to be punitive, but reflective of the true cost required to provide the customer-member’s requested “opt-out” option. Table 3-1a SMECO “opt-out” service charges for Scenario 1: Analog, Scenario 2: Digital, or Scenario 3: ERT/AMR

Scenario 1 – Analog, Scenario 2 – Digital and Scenario 3 - ERT/AMR Upfront One-Time Monthly

1% $105.32 $34.94

2% $84.03 $31.68

5% $71.27 $29.73

The charges summarized in Table 3-1a are intended to alleviate any cost burden (results shown in Table 4-1a) being placed on AMI customer-members by customer-members choosing an “opt-out” option. Unless mitigated, all customers-members would have to subsidize the cost for “opt-out” customermembers though rates.

17

SMECO intends to retain a supply of these meters retrieved during the AMI installation efforts.
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3.2 SERVICES CHARGES FOR AN “OPT-OUT” OPTION WITH SCENARIO 4: INTERVAL DATA/MODEM METER (TELEPHONE LINE-POTS)
This section describes SMECO’s cost analysis for an “opt-out” program with an Interval Data/Modem Meter. Table 3-2a depicts the upfront one-time and monthly costs to be incurred by customer-members who “opt-out” of the AMI meter, should SMECO have to provide this option to its customer-members. As illustrated in the table 3-2a, as participation increases in this option, an individual customermember’s upfront and monthly “opt-out” service charges decrease. Under this scenario a customermember would be charged for the non-AMI meter as SMECO does not currently supply this option to its residential customer-member. Based on the last invoice SMECO received for this type of meter, the anticipated price of a meter to offer this “opt-out” option is $767.00. The meter cost is the largest cost component of a customer-member’s required upfront one-time fee. The two truck rolls required to install, and later, to remove (exit fee) the alternative meter are higher as it requires a more technically advanced staff to install and remove a meter connected to a POTS line (total cost of $112.98). In addition, this “opt-out” solution requires the installation of a dedicated phone line jack. SMECO has been advised by the local phone service provider that the required costs to provide the POTS line for this RF free solution includes $46.00 connection fee for the additional phone circuit and an additional $95.00 fee for the phone technician to enable the physical jack at the property. SMECO further estimates an additional fee for the installation of a phone wire from phone company’s jack to the meter’s phone connection point requires on average two hours of time ($121.67) plus an estimated $50 in materials. In terms of the monthly fee, a customer-member will expect to incur a fixed meter read fee of $22 (monthly phone bill). SMECO will have to purchase additional meter reading and repair equipment to handle any failures with this non-manual solution. SMECO does not have a measurement guideline for the maintenance required to maintain phone service for residential POTS line used for billing grade interval data information. The experience characterized in the description for Scenario 4 for residential POTS lines was based on shared POTS line. SMECO does feel the maintenance of POTS lines used to read interval data for customer-member accounts will be substantial but has not included these costs in an estimate. SMECO has the expectation that additional fees due to POTS line maintenance would be charged directly to the customer-member. The fees below are not intended to be punitive, but in fact reflective of the true cost required to provide “opt-out” customer-members the services they are requesting. Table 3-2a SMECO “opt-out” service charges for Scenario 4: Interval Data/Modem Meter (Telephone Line -POTS)

Scenario 4 - Interval Data/Modem Meter (Telephone Line -POTS) Upfront One-Time Monthly

1% 2% 5% $1,251.70 $1,226.76 $1,211.80 $30.47 $27.06 $25.01

The charges summarized in Table 3-2a are intended to alleviate any cost burden (results shown in Table 4-2a) being placed on all customer-members due to customer-members choosing to “opt-out”. Unless mitigated, all customer-members would have to subsidize the cost for “opt-out” options though rates.

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3.3 SERVICE CHARGES FOR AN “OPT-OUT” OPTION WITH SCENARIO 5: SMART METER: LIMITED FREQUENCY
This section describes SMECO’s cost analysis for an “opt-out” program with an AMI meter in which the frequency of the meters transmissions of RF signal have been programmatically limited. This option does not decrease the level of the RF signal but limits the number a times the RF signal is transmitted. For SMECO’s AMI solution, the RF signal limit transmission rate is configurable from 0 – 84 hours. Table 3-3a depicts the upfront one-time and monthly costs incurred by customer-members should SMECO be required to offer this option. As illustrated in the table below, as participation increases in the "opt-out" program, an individual customer-member’s upfront and monthly “opt-out” service charges decrease. Under this scenario a customer-member would not be charged for the cost of the meter as this solution requires a remote configuration of an AMI meter to decrease the number of transmits. SMECO anticipates, based on vendor discussions, that configuring the AMI meter to the limited frequency setting will require ½ hour per meter. Configuring the meter back to a standard AMI meter will also require ½ hour per meter. SMECO estimates these processes to cost a total of $78.28. This solution does not require SMECO to maintain any duplicative meter reading systems or excess field activity. As a result the monthly charge for the meters will be minimal. The fees below are not meant to be punitive, but in fact reflective of the true cost required to provide “opt-out” customer-members the services they are requesting. Table 3-3a SMECO “opt-out” service charges for Scenario 5: Smart Meter: Limited Frequency

The charges summarized in Table 3-3a are intended to alleviate any cost burden (results shown in Table 4-3a) being placed on customer-members by customer-members choosing to “opt-out”. Unless mitigated, all customer-members would have to subsidize the costs for “opt-out” customer-members though rates.

3.4 SERVICE CHARGES FOR AN “OPT-OUT” OPTION WITH SCENARIO 6: PROBE A DIGITAL INTERVAL METER
This section describes SMECO’s cost analyses for an “opt-out” program with a process requiring a manual probe of a digital meter in order to read interval data. Table 3-4a depicts the upfront one-time and monthly costs incurred by customer-members should SMECO be required to offer this option. As participation increases in the "opt-out" program, an individual customer-member’s upfront and monthly “opt-out” service charges decrease. Under this scenario a customer-member would be charged for the full cost of the meter as SMECO will not currently offer this metering function to its customer-members . Based on the last invoice SMECO received for this type of meter, the anticipated price of the meter is $285.00 per unit. The meter cost is the largest cost component of the upfront fee. Two truck rolls are required to install, and later, to remove (exit fee) the meter. Because of the technical requirements of this solution a higher classification of staff are required for the programming,
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installation, and removal (total cost of $112.98). In terms of the monthly fee, a customer-member will expect to incur a fixed meter read fee of $56.49. The process to probe a digital meter for interval data is time consuming as interval data download time is 3-5 minutes depending on the amount of data held within the meter. The fees below are not meant to be punitive, but in fact reflective of the true cost required to provide “opt-out” customer-members the services they are requesting. Table 3-4a SMECO “opt-out” service charges for Scenario 6: Probe a Digital Interval Meter

The charges summarized in Table 3-4a are intended to alleviate any cost burden (results shown in Table 4-4a) being placed on customer-members for SMECO to provide this “opt-out” option. Unless mitigated, all customer-members would have to subsidize costs for “opt-out” customer-members though rates.

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4.0 Impact to SMECO Business Operations With A No-Charge “Opt-Out” Option
In this section, SMECO intends to demonstrate the cost of maintaining dual business processes to accommodate customer-members electing to “opt-out” who are not responsible for their service charges. SMECO plans to begin system-wide AMI implementation after the PSC’s completes its review process. When completed, the AMI system will deliver substantial value to SMECO’s customermembers by reducing operating costs, improving customer-member service and reliability, and enhancing employee safety. These benefits will accrue through changes in operational activities and business processes that are made possible by the technological attributes of AMI system’s functionality. The four sub-sections below also depict the overall impact of an “opt-out” program on SMECO’s postAMI business operations if “opt-out” customer-members are not responsible for their service charges. These customer-members will not only forgo many of the tangible benefits that AMI can provide but also impact the business case analysis SMECO performed on its AMI program.

4.1 IMPACT OF A NO CHARGE “OPT-OUT” OPTION WITH A LEGACY METER – SCENARIO 1: ANALOG, SCENARO 2: DIGITAL, AND SCENARIO 3: ERT/AMR
This section describes SMECO’s cost analysis for an “opt-out” option with either an Analog, Digital or ERT/AMR meter. SMECO has consolidated the results of these three scenarios due to the following reasons:  SMECO did not observe any differences in terms of required system costs between the three proposed “opt-out” options  The cost impact for SMECO is also identical if “opt-out” customer-members are not responsible for their service charges

SMECO analyzed the effect that these three “opt-out” options would present to SMECO’s post-AMI business operations if the customer-members choosing to “opt-out” were not responsible for their service charges. Table 4-1a depicts the financial impact to SMECO’s business processes post-AMI deployment at the 1%, 2% and 5% “opt-out” participation levels. If customer-members electing to choose an “opt-out” service were not responsible for their service charges (as depicted in Table 3-1a), SMECO anticipates a total impact range from an “opt-out” program in Year 1 to be between roughly $730,000 and $3,000,000.

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Table 4-1a

Impact to SMECO Operations from a no charge “opt-out” option with Scenario 1: Analog, Scenario 2: Digital, or Scenario 3: ERT/AMR

Table 4-1b presents the results of SMECO’s Operational AMI Business Case analysis, reflecting the impact of a no charge “opt-out” option with an Analog, Digital or ERT/AMR meter would have on SMECO’s AMI Business Case. Specifically, the effect to both SMECO’s AMI operational benefits and operational costs. Table 4-1b
Element Total AMI Benefits Avoided Capital Avoided O&M Increase Operating Revenue Avoided Purchase Power Costs Total Total AMI Costs Capital Amortization of Existing Meter Assets (net) O&M Total Total Resource Cost (TRC) (Operational) Total Resource Cost (TRC) with DR

Impact of a no charge “opt-out” option to SMECO’s AMI Business Case with Scenario 1: Analog, Scenario 2: Digital, or Scenario 3: ERT/AMR Scenario 1 - Analog (15 YR Post Deployment Period)
Net Present Value ($ millions) Current 1% Opt-Out 2% Opt-Out 5% Opt-Out Business Case Particpation Particpation Particpation $1,652.7 $1,611.0 $1,600.7 $1,569.6 $36,256.3 $7,392.5 $1,438.5 $46,740.0 $30,952.6 $7,345.4 $1,424.9 $41,334.0 $25,967.7 $7,298.3 $1,411.2 $36,277.9 $11,013.0 $7,157.0 $1,370.3 $21,109.9 Total $ (nominal) Current 1% Opt-Out 2% Opt-Out Business Case Particpation Particpation $3,844.0 $3,756.8 $3,732.4 $73,152.4 $15,079.6 $2,947.3 $95,023.3 $62,399.9 $14,980.1 $2,918.5 $84,055.3 $52,316.6 $14,880.5 $2,889.6 $73,819.1 5% Opt-Out Participation $3,659.4 $22,066.6 $14,581.8 $2,803.0 $43,110.8 5% Opt-Out Participation $42,807.1 $0.0 $28,259.8 $71,066.9 0.61 1.34

Current 1% Opt-Out 2% Opt-Out 5% Opt-Out Business Case Particpation Particpation Particpation $21,607.3 $22,395.7 $22,405.4 $22,434.5 $2,199.1 $16,489.1 $40,295.5 1.16 1.70 $2,199.1 $16,489.1 $41,083.9 1.01 1.54 $2,199.1 $16,489.1 $41,093.6 0.88 1.42 $2,199.1 $16,489.1 $41,122.7 0.51 1.09

Current 1% Opt-Out 2% Opt-Out Business Case Particpation Particpation $41,138.2 $42,754.5 $42,767.6 $0.0 $28,259.8 $69,397.9 1.37 2.07 $0.0 $28,259.8 $71,014.2 1.18 1.88 $0.0 $28,259.8 $71,027.4 1.04 1.74

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As shown in Table 4-1b, these three “opt-out” options, if offered at no charge to customer-members, would decrease the AMI program’s value. The decrease in the AMI program’s value is the result of lower realized operational AMI efficiencies due to the “opt-out” program. SMECO will not be able to fully realize the elimination of its meter reading activities or excess truck rolls. Moreover, faced with a non-contiguous meter reading process, SMECO’s per meter read cost would increase substantially. However, the AMI program enables SMECO to absorb the impact of even a 5% “opt-out” participation level and still justify its AMI investment as the TRC ratio remains above 1 in both NPV and nominal terms.

4.2 IMPACT OF A NO CHARGE “OPT-OUT” OPTION WITH SCENARIO 4: INTERVAL DATA/MODEM METER (TELEPHONE LINE-POTS)
SMECO analyzed the effect that Interval Data/Modem Meter “opt-out” options would present to SMECO’s post-AMI business operations if the customer-members choosing to “opt-out” were not responsible for their service charges. Table 4-2a depicts the financial impact to SMECO’s business processes post-AMI deployment at the 1%, 2% and 5% “opt-out” participation levels. If customermembers electing to choose an “opt-out” service were not responsible for their service charges (as depicted in Table 3-2a), SMECO anticipates a total impact range from an “opt-out” program in Year 1 to be between roughly $2,250,000 and $10,500,000. Table 4-2a Impact to SMECO Operations from a no charge “opt-out” option with Scenario 4: Interval Data/Modem Meter (Telephone Line -POTS)

Scenario 4 - Interval Data/Modem Meter (Telephone Line -POTs) Participation Levels Current Business Case 1% 2% 5% Meter Reading $1,828,922 $1,376,320 $1,004,153 -$112,347 Meter Operations $1,037,679 $1,030,010 $1,022,342 $999,335 Revenue Protection $1,219,160 $1,212,892 $1,206,623 $1,187,818 Load research $483,135 $483,135 $483,135 $483,135 Credit Collections $482,489 $479,990 $477,492 $469,996 Billing $74,180 $72,848 $71,516 $67,519 Customer Care $3,585 -$17,800 -$30,595 -$69,015 Distribution and Outage Management $537,745 $532,822 $527,898 $513,127 Total AMI Benefits $5,666,896 $5,170,217 $4,762,564 $3,539,569 Erosion of AMI Benefits -$496,679 -$904,333 -$2,127,328 -$1,754,119 -$3,413,846 -$8,393,029 Additional Costs of Opt-Out Solution 1 Total Opt-Out Solution Impact - Year 1 -$2,250,797 -$4,318,179 -$10,520,356 Note: 1) Additional Costs include Cost to Purchase Meter, Installation of Non- AMI Meter Removal of Non-AMI Meter (Exit Fee), Additional requirements for system functionality, Meter Inventory/Facility, IT Storage &Hardware, Customer Education Materials and Mailings, IT - MVRS/MV90 Maintenance and application integration, Operation of System (upload/download) and Changes to Rate/Revenue to track separate billed revenues.

Table 4-2b presents the results of SMECO’s Operational AMI Business Case analysis, reflecting the impact of a no charge “opt-out” option with an Interval Data/Modem Meter (Telephone Line-POTS) would have on SMECO’s AMI Business Case. Specifically, the effect to both SMECO’s AMI operational benefits and operational costs.

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Table 4-2b
Element Total AMI Benefits Avoided Capital Avoided O&M

Impact of a no charge “opt-out” option to SMECO’s AMI Business Case with Scenario 4: IntervalScenario Data/Modem (Telephone Lines-POTS) 4 - Telephone (POTs) (15 YR Post Deployment Period)
Net Present Value ($ millions) Total $ (nominal) Current 1% Opt-Out 2% Opt-Out 5% Opt-Out Current 1% Opt-Out 2% Opt-Out 5% Opt-Out Business Case Particpation Particpation Particpation Business Case Particpation Particpation Participation $1,652.7 $1,602.7 $1,592.3 $1,561.2 $3,844.0 $3,740.1 $3,715.8 $3,642.7 $36,256.3 $7,392.5 $1,438.5 $46,740.0 $32,319.7 $7,345.4 $1,424.9 $42,692.7 $28,752.1 $7,298.3 $1,411.2 $39,054.0 $18,049.2 $7,157.0 $1,370.3 $28,137.8 $73,152.4 $15,079.6 $2,947.3 $95,023.3 $65,013.1 $14,980.1 $2,918.5 $86,651.7 $57,395.8 $14,880.5 $2,889.6 $78,881.6 $34,924.0 $14,581.8 $2,803.0 $55,951.5

Increase Operating Revenue Avoided Purchase Power Costs Total Total AMI Costs Capital Amortization of Existing Meter Assets (net) O&M Total Total Resource Cost (TRC) (Operational) Total Resource Cost (TRC) with DR

Current 1% Opt-Out 2% Opt-Out 5% Opt-Out Current 1% Opt-Out 2% Opt-Out 5% Opt-Out Business Case Particpation Particpation Particpation Business Case Particpation Particpation Participation $21,607.3 $23,305.1 $24,217.4 $26,954.6 $41,138.2 $44,508.6 $46,099.4 $51,118.0 $2,199.1 $16,489.1 $40,295.5 1.16 1.70 $2,199.1 $16,489.1 $41,993.2 1.02 1.54 $2,199.1 $16,489.1 $42,905.6 0.91 1.43 $2,199.1 $16,489.1 $45,642.7 0.62 1.13 $0.0 $28,259.8 $69,397.9 1.37 2.07 $0.0 $28,259.8 $72,768.4 1.19 1.91 $0.0 $28,259.8 $74,359.2 1.06 1.74 $0.0 $28,259.8 $79,377.8 0.70 1.36

As shown in Table 4-2b this “opt-out” option, if offered at no charge to customer-members, would decrease the AMI program’s value. The decrease in the AMI program’s value is the result of lower realized operational AMI efficiencies due to the “opt-out” program. Though SMECO will be able to fully realize the elimination of its manual meter reading activities, the Cooperative will be required to maintain dedicated phone lines at $22 per month to read meters and perform excess truck rolls not needed by AMI. However, the AMI program enables SMECO to absorb the impact of even a 5% “optout” participation level and still justify its AMI investment as the TRC ratio remains above 1 in both NPV and nominal terms.

4.3 IMPACT OF A NO CHARGE “OPT-OUT” OPTION WITH SCENARIO 5: SMART METER: LIMITED FREQUENCY
SMECO analyzed the effect an “opt-out” option with a Smart Meter: Limited Frequency would present to SMECO’s post-AMI business operations if the customer-members choosing to “opt-out” were not responsible for their service charges. Table 4-3a depicts the financial impact to SMECO’s business processes post-AMI deployment at the 1%, 2% and 5% “opt-out” participation levels. If customermembers electing to choose an “opt-out” service were not responsible for their service charges (as depicted in Table 3-3a), SMECO anticipates a total impact range from an “opt-out” program in Year 1 to be between roughly $150,000 and $640,000. The impact of this “opt-out” solution is minimal when compared to the other “opt-out” scenarios as SEMCO is able to eliminate dual meter reading systems and maintain singular business processes post-AMI.

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Table4-3a

Impact to SMECO Operations from a no charge “opt-out” option with Scenario 5: Smart Meter: Limited Frequency

Table 4-3b presents the results of SMECO’s Operational AMI Business Case analysis, reflecting the impact of a no charge “opt-out” option with an Smart Meter: Limited Frequency would have on SMECO’s AMI Business Case. Specifically, the effect to both SMECO’s AMI operational benefits and operational costs.

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Table 4-3b
Element Total AMI Benefits Avoided Capital Avoided O&M

Impact of a no charge “opt-out” option to SMECO’s AMI Business Case with Scenario 5: SMART METER: Limited Frequency to SMECO AMI Business Case Scenario 5 - Smart Meter: Limited Frequency (15 YR Post Deployment Period)
Net Present Value ($ millions) Current 1% Opt-Out Business Case Particpation $1,652.7 $1,652.7 $36,256.3 $7,392.5 $1,438.5 $46,740.0 $36,256.3 $7,392.5 $1,438.5 $46,740.0 2% Opt-Out 5% Opt-Out Particpation Particpation $1,652.7 $1,652.7 $36,256.3 $7,392.5 $1,438.5 $46,740.0 $36,256.3 $7,392.5 $1,438.5 $46,740.0 Total $ (nominal) Current 1% Opt-Out Business Case Particpation $3,844.0 $3,844.0 $73,152.4 $15,079.6 $2,947.3 $95,023.3 $73,152.4 $15,079.6 $2,947.3 $95,023.3 2% Opt-Out Particpation $3,844.0 $73,152.4 $15,079.6 $2,947.3 $95,023.3 2% Opt-Out Particpation $41,392.0 $0.0 $28,259.8 $69,651.8 1.36 2.06 5% Opt-Out Participation $3,844.0 $73,152.4 $15,079.6 $2,947.3 $95,023.3 5% Opt-Out Participation $41,759.5 $0.0 $28,259.8 $70,019.3 1.36 2.05

Increase Operating Revenue Avoided Purchase Power Costs Total Total AMI Costs Capital Amortization of Existing Meter Assets (net) O&M Total Total Resource Cost (TRC) (Operational) Total Resource Cost (TRC) with DR

Current 1% Opt-Out Business Case Particpation $21,607.3 $21,683.0 $2,199.1 $16,489.1 $40,295.5 1.16 1.70 $2,199.1 $16,489.1 $40,371.2 1.16 1.69

2% Opt-Out 5% Opt-Out Particpation Particpation $21,752.2 $21,959.7 $2,199.1 $16,489.1 $40,440.3 1.16 1.69 $2,199.1 $16,489.1 $40,647.9 1.15 1.68

Current 1% Opt-Out Business Case Particpation $41,138.2 $41,269.5 $0.0 $28,259.8 $69,397.9 1.37 2.07 $0.0 $28,259.8 $69,529.3 1.37 2.07

As shown on table 4-3b Scenario 5 does not materially impact SMECO’s AMI project value. Even with a 5% “opt-out” participation level the TRC ratio remains consistent with the original estimated project TRC in both NPV and nominal terms. This scenario would require minimum adjustments to the proposed business processes under AMI in the previously filed business case. Moreover, a singular meter reading system will be maintained under this option.

4.4 IMPACT OF A NO CHARGE “OPT-OUT” OPTION WITH SCENARIO 6: PROBE A DIGITAL INTERVAL METER
SMECO analyzed the effect a Probe a Digital Interval Meter “opt-out” option would present to SMECO’s post-AMI business operations if the customer-members choosing to “opt-out” were not responsible for their service charges. Table 4-4a depicts the financial impact to SMECO’s business processes post-AMI deployment at the 1%, 2% and 5% “opt-out” participation levels. If customer-members electing to choose an “opt-out” service were not responsible for their service charges (as depicted in Table 3-4a), SMECO anticipates a total impact range from an “opt-out” program in Year 1 to be between roughly $1,700,000 and $7,550,000.

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Table 4-4a

Impact to SMECO Operations from a no charge “opt-out” option with Scenario 6: Probe a Digital Interval Meter

Table 4-4b evaluates the impact that a no charge “opt-out” option with probing a digital interval meter would have on its AMI Business Case. Below, SMECO presents the impact of an “opt-out” program to both AMI operational benefits and operational costs if customer-members electing to “opt-out” were not responsible for their service charges. Table 4-4b
Element Total AMI Benefits Avoided Capital Avoided O&M Increase Operating Revenue Avoided Purchase Power Costs Total Total AMI Costs Capital Amortization of Existing Meter Assets (net) O&M Total Total Resource Cost (TRC) (Operational) Total Resource Cost (TRC) with DR

Impact of a no charge “opt-out” option to SMECO’s AMI Business Case with Scenario 6: Probe a Digital Interval Meter to SMECO AMI Business Case Scenario 6 - Probe the Digital Interval Meter (15 YR Post Deployment Period)
Net Present Value ($ millions) Total $ (nominal) 1% Opt-Out 2% Opt-Out 5% Opt-Out Current Current 1% Opt-Out 2% Opt-Out 5% Opt-Out Business Case Particpatio Particpation Particpation Business Case Particpation Particpatio Participation n $1,526.8 n $3,449.4 $1,652.7 $1,474.0 $1,315.7 $3,844.0 $3,573.3 $3,077.9 $36,256.3 $7,392.5 $1,438.5 $46,740.0 $25,602.3 $7,345.4 $1,424.9 $35,899.4 $15,309.9 $7,298.3 $1,411.2 $25,493.5 ($15,567.2) $7,157.0 $1,370.3 ($5,724.1) $73,152.4 $15,079.6 $2,947.3 $95,023.3 $51,565.1 $14,980.1 $2,918.5 $73,036.9 $30,743.7 $14,880.5 $2,889.6 $51,963.2 ($31,720.6) $14,581.8 $2,803.0 ($11,258.0)

1% Opt-Out 2% Opt-Out 5% Opt-Out Current Current 1% Opt-Out 2% Opt-Out 5% Opt-Out Business Case Particpatio Particpation Particpation Business Case Particpation Particpatio Participation n $22,658.7 $21,607.3 $22,924.6 $23,722.5 $41,138.2 $43,238.0 n $43,722.3 $45,175.3 $2,199.1 $16,489.1 $40,295.5 1.16 1.70 $2,199.1 $16,489.1 $41,346.8 0.87 1.41 $2,199.1 $16,489.1 $41,612.8 0.61 1.17 $2,199.1 $16,489.1 $42,410.7 (0.13) 0.47 $0.0 $28,259.8 $69,397.9 1.37 2.07 $0.0 $28,259.8 $71,497.7 1.02 1.72 $0.0 $28,259.8 $71,982.1 0.72 1.44 $0.0 $28,259.8 $71,982.1 (0.16) 0.60

BLACK & VEATCH | Impact to SMECO Business Operations With A No-Charge “Opt-Out” Option

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As shown on table 4-4b the Probe the Digital Interval Meter “opt-out” option decreases the AMI program’s value, and at a 5% “opt-out” participation level the TRC ratio falls below 1 in both NPV and nominal terms. The decrease in the AMI program’s value is the result of lower realized operational AMI efficiencies due to the “opt-out” program. Specifically, the extensive labor required to probe meters to enable customer-members with TOU rates will erode most of the operational AMI benefits.

BLACK & VEATCH | Impact to SMECO Business Operations With A No-Charge “Opt-Out” Option

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5.0 Conclusion and Recommended “Opt-Out” Non-Standard Meter Installation
SMECO agrees with the Commission’s perspective that customer-members who are provided with an additional option to “opt-out” of the installation of smart meters on their homes, should bear the appropriate costs. SMECO understands the rationale for investigating an “opt-out” option for its customer-members. SMECO has reviewed the experiences of other utilities18 “opt-out’ programs and has the expectation that a small number of customer-members will choose to out-out of an AMI meter installation. An architected service charge schedule which will ensure the viability of SMECO’s AMI project as well as prevent all customer-members from subsidizing customer-members who are electing an “opt-out” option. SMECO assessed the opt-out impacts to its AMI Business Case19, the impacts to the operational business processes, as well as the potential opt-out service charges to customer-members electing to opt-out. As a result, SMECO recommends to offer the most viable option available, Scenario 3, an ERT/AMR meter, which has been in use within the SMECO territory for over 10 years. SMECO is recommending Scenario 3, an ERT/AMR meter, as it fulfills the Commission’s request to provide a RF-minimizing option related to the installation of a smart meter. 20 This alternative also allows customer-members who choose to “opt out” to retain a legacy meter as defined by the Commission.21 SMECO proposes that a standard meter for its customer-members be the AMI meter, however customer-members who elect to “opt-out” will have an ERT/AMR meter installed (Scenario 3). If required by the Commission to offer a TOU rate for “opt-out” customer-members, the customermember will have an RF-free, interval data meter installed (Scenario 6). The interval data will be obtained by physically visiting the meter on a monthly basis, manually connecting a read device to the meter, and performing a download of the interval data to the back office systems.

18 19

Refer to Appendix 1-1: Review of U.S. “Opt-Out” Programs. AMI Business Case was submitted in June 2012 20 PSC Order 85371 21 PSC Order Granting Request for Clarification 85371
BLACK & VEATCH | Conclusion and Recommended “Opt-Out” Non-Standard Meter Installation 5-26

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Appendix 1-1: Review of U.S. “Opt-Out” Programs
As SMECO investigates implementing an Advanced Metering Infrastructure (AMI) program, one important consideration is the potential impact of an “opt-out” option. SMECO must anticipate concerns raised by opponents of the AMI technology. As smart meter deployments have reached an estimated one in three households in the United States, utilities have faced increasing opposition during the past two years from those who believe the meters present a danger to health, safety, privacy, the economy or national security.22 A recent study conducted by Chartwell indicated that within the last few years the number of active “smart meter [AMI] opt-out programs offered by utilities in the U.S. and Canada has grown from zero to more than a dozen”.23 The table below lists the limited number of states which have addressed the question of an “opt-out” option: SUMMARY ANALYSIS OF AMI “OPT-OUT” PROGRAMS BY STATE
Number of states where a docket or Bill has been opened to discuss an AMI “opt-out” alternative States where utilities were ordered to provide an AMI “opt-out” program by a regulatory commission or state legislature 14 States and District of Columbia California, D.C., Georgia, Maine, Maryland, Michigan, Nevada, Oregon, Pennsylvania and Vermont States where an “opt-out” program is being considered by their regulatory commission States where utilities have offered an “opt-out” program prior to a request by a regulatory commission (not included in 14 states mentioned above) States where “opt-out” concerns were dismissed Idaho, New Hampshire, and Wisconsin Colorado and Illinois Arizona and Texas
24

DESPITE MEDIA ATTENTION OF “OPT-OUT” PROGRAMS, PARTICIPATION RATES REMAIN LOW Efforts to oppose advanced metering programs have garnered significant publicity in the media, though it appears that these claims represent the opinion of a vocal minority as opposed to a concept

22
23

Smart Meter Opt-Out Programs 2013, Russ Henderson Smart Meter Opt-Out Programs 2013, Russ Henderson 24 14 states - Arizona, California, Colorado, D.C., Georgia, Idaho, Illinois, Maine, Maryland, Michigan, Nevada, New Hampshire, Oregon, Pennsylvania, Texas, Vermont, Wisconsin

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advocated by the mainstream public. The figures in the chart below imply that the “opt-out” option is not as prevalent as the magnified media coverage would lead the public to believe.25 CURRENT EXAMPLES OF “OPT-OUT” PARTICIPATION LEVELS
UTILITY “OPT-OUT” PARTICIPATION Central Maine Power (ME) Green Mountain Power (VT) Portland General (OR) Pacific Gas & Electric (CA) San Diego Gas & Electric (CA) 1.40% 2.03% .0004% .55% .08% $40 None $254 $75 $75 $12 None $51 $10 $10 UPFRONT FEE MONTHLY FEE

The basic premise of an “opt-out” option is to accommodate individuals who refuse an upgraded AMI meter. In instances where customers do not want an AMI meter in their homes, the “opt-out” option relies primarily on maintaining a legacy electromechanical meter. Research indicates that when utilities offer “opt-out” customers the choice between the legacy electromechanical meter and the smart meter with its communications module switched off, the legacy meter is the more popular option. CUSTOMER RATIONALE FOR OPTING-OUT Resistance to AMI has the attention of utilities and regulators. Some utilities have initiated their own smart-meter “opt-out” programs, while other utilities have been ordered to do so by regulators. The proportion of utility customers opting out has remained relatively low. This vocal minority has espoused a strong apprehension regarding the new advanced meter and its implications for personal privacy or public health which are summarized below. Personal Privacy – The issue of privacy involves the collection and use of energy consumption information with enough granularity to determine activities going on within the premise. This general issue of privacy surrounds what information is collected about a person that is not in the public domain, who is privy to that information, and what is done with the information after it is collected. However, SMECO wishes to reaffirm to its customer-members that the cooperative is committed to keeping its customer-member data private. Customer-members can be assured that the cooperative will use customer-member usage data only for legitimate utility-related business activity. The cooperative takes very seriously its privacy policy and safeguards the confidentiality of its customer-members that it is entrusted with. SMECO possesses a comprehensive data privacy protection policy that covers the energy use and operational data collected by AMI meters as well as other metering devices. SMECO’s
25

Smart Meter Opt-Out Programs 2013, Russ Henderson

BLACK & VEATCH | Appendix 1-1: Review of U.S. “Opt-Out” Programs

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AMI program will make significant investments in encryption technology and security practices. Usage data coming over the network will be encrypted using the latest technology and has no customermember identifiable information associated with it. All data being sent to and from the meter will be encrypted to ensure security and accuracy. Public Health – The potential health effects of advanced meters is one of the most difficult issues to address as it is quite difficult to persuade concerned parties categorically that smart meters have no health impacts. Opponents take issue with the notion that advanced meters are safe because they operate within the RF radiation requirements of the Federal Communications Commission (FCC) which regulates wireless devices. Critics argue that the duty cycle assumptions underlying the standards are different than the actual operational characteristics of advanced meters and that the FCC regulations are designed for intermittent exposure not long-term exposure. However, SMECO has not discovered any credible reports which affirm these claims. SMECO’s AMI meters will use very low power radio-frequency (RF) signals to communicate energy use information back to the cooperative. The respective RF exposure from an AMI meter is minimal compared to other household products. Additionally, AMI RF signals are of much shorter duration, typically less than 1 second for every emission. Further, SMECO reviewed the extensive research that has been provided during AMI “opt-out” debates across the U.S. and concluded that several studies demonstrate that consumers will experience no increased health risk with an AMI meter. In 2010, the California Council of Science and Technology (CCST) evaluated over 100 publications and postings about smart meters and other devices in the same range of RF signals and consulted with over two dozen experts in the field. The CCST released its findings in 2011. The CCST found that RF fields from smart meters are much lower than the RF exposure limits established by the FCC and that scientific research has not confirmed any adverse effects caused by RF fields below those exposure standards.26 The CCST’s 2011 results concluded that, when properly installed and maintained, wireless AMI meters result in less RF exposure than other household appliances. The Edison Electric Institute, Association of Edison Illuminating Companies, and the Utilities Telecom Council published a white paper, which complements the findings of the CCST in concluding that the RF exposure effects of AMI meter are very small compared to exposure from other sources in the home and that AMI meters operate significantly below FCC exposure limits. 27 The Electric Power Research Institute (EPRI), after analyzing AMI meter RFs, affirmed that the RF field levels from the AMI meters are

26 27

California Council on Science and Technology, "Health Impacts of Radio Frequency from Smart Meters” available at http://www.ccst.us/publications/2011/2011 smartA.pdf ("CCST Report"). A Discussion of Smart Meters and RF Exposure Issues, an EEI-AEIC-UTC White Paper, March 2011.

BLACK & VEATCH | Appendix 1-1: Review of U.S. “Opt-Out” Programs

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below the exposure limits stipulated by the FCC.28 As a result of this thorough review, SMECO does not believe that AMI RF exposure poses a threat to the health of its customer-members. Becoming familiar with the respective arguments in each of these areas is important because SMECO may face questions on these topics and should be prepared to appropriately respond and educate its customer-members, as necessary. In many cases resistance stems from a customer’s perspective that the advanced meter and advanced metering program are typically compulsory for them without their direct acceptance. Without a basis to personalize the potential benefits, coupled with the natural perception that this technology will cost the consumer money, customers have a tendency to revert to objecting to the advanced metering program. However, studies conclude that relatively low participation in “opt-out” options indicates that, if educated and engaged; customers recognize and value the benefits that AMI can enable. SMECO would seek to elucidate the numerous benefits that AMI provides to its customer-members. “OPT-OUT” PROGRAM COST RECOVERY Despite the nuances of these programs, both regulators and utilities have made an effort to maintain the economic viability of pursuing an advanced metering program. Regulators and utilities in other states have had to consider “opt-out” programs and recognize that an “opt-out” option may erode the viability of an advanced metering program as it is difficult to justify the large scale investment without knowing the number of customers choosing advanced meters. In the few locations where there is an “opt-out” option, customers who do not want an upgraded AMI meter are required to cover at least a portion of the additional on-going operational costs incurred by the utility as a result of the “opt-out” option. These additional costs may initially be borne by the utility but they will ultimately become the burden of the other ratepayers who will be subsidizing the limited number of “opt-out” customers. Therefore, the issue for the utility to address with its regulator is how to balance individual rights with the overall economic and societal benefits offered by the advanced metering program. Though there is not a defined allocation, customers who “opt-out” of an AMI meter are required to pay an initial upfront fee and cover at least a portion of the additional on-going operational costs incurred by the utility. The fees are not an attempt to punish customers who seek to avoid the “AMI” meter, but are recognition by regulators and utilities of the impending operational changes. The fees represent a means to alleviate some of the financial burden imposed on the utility in having to perform distinct dual processes to accommodate a small minority in the utility’s service territory. Specifically, an “opt-out” option for an advanced metering program has the following results:

Electric Power Research Institute (EPRI). 2011. “Characterization of radiofrequency emissions from two models of wireless smart meters.”
28

BLACK & VEATCH | Appendix 1-1: Review of U.S. “Opt-Out” Programs

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1) 2)

Additional capital costs incurred to enable alternate technologies required and additional Additional Operating and Maintenance costs to support the unique, small scale meter reading

Operation and Maintenance costs to maintain that alternate technology, and costs associated with the “opt-out” customers. Below are examples of existing AMI “opt-out” programs across the U.S.: 29 CURRENT EXAMPLES OF “OPT-OUT” PROGRAMS
STATE California UTILITY Pacific Gas & Electric San Diego Gas & Electric PROGRAM 1. PG&E and SDG&E Customers who want to opt out of advanced meters will be required to pay a one-time $75 fee and a monthly charge of $10. Low income customers will pay an initial fee of $10 and a monthly charge of $5. Illinois City of Naperville 1. One-time installation fee of $68.35 to install the alternative meters, and an additional monthly charge of $24.75 to have them read. Maine Central Maine Power 1. CMP installs an AMI meter with full capabilities, including interval data, etc. 2. CMP installs an AMI meter with radio turned off a. Initial charge $20 b. Monthly charge $10.50 3. CMP does not install an AMI meter; leaves legacy meter in place a. Initial charge $40 b. Monthly charge $12 Michigan Consumers Energy Detroit Edison 1. CE customers electing to opt out would be subject to initial charge of $69.39 and monthly $11.12 fee 2. CE customers who elect to have an installed smart meter removed must pay upfront fee of $123.91 plus monthly $11.12 fee 3. DE customers electing to opt out would be subject to initial charge of $87 for costs of special infrastructure and metering changes and monthly $15 fee to cover incremental costs of manual meter reading infrastructure and other services Oregon Portland General Electric 1. PGE customers incur one-time installation charge of $254 for the installation of a non-network meter, labor and vehicle expenses in addition to a monthly meter reading charge of $51 per month based upon labor, mileage and vehicle expenses

29

This summary is based on an Edison Electric Institute Summary of State Regulatory Actions on Smart Meter Opt-out and preliminary research of AMI “”opt-out” programs .

BLACK & VEATCH | Appendix 1-1: Review of U.S. “Opt-Out” Programs

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CONCLUSION An assessment of SMECO’s service base will enable the cooperative to provide appropriate messaging regarding its advance metering program which will aid in assuaging concerns. SMECO’s research of the “opt-out” debate across the U.S. enables the cooperative to conclude that there is not any reliable scientific basis to conclude that there are health risks related to RF exposures at the levels emitted by the cooperative’s AMI meters. In addition, the cooperative values its customer’s privacy and an AMI meter will not undermine the security of its customer-member’s privacy. Moreover, the Maryland Public Service Commission PSC staff indicated last April that based on several studies; most of these concerns are unfounded. As a result, SMECO believes that an AMI meter will provide benefits for all of its customer members in terms of managing their bills and usage. However given the nature of concerns raised by those opposed to AMI, SMECO understands the rationale for an investigation of an “opt-out” option for its customer base. For the small base of consumers still wishing to choose a “non-AMI” meter solution, SMECO has reviewed the experiences of current utilities and architected an “opt-out” fee schedule which will ensure the viability of its AMI project as well as preventing customer-members choosing AMI from subsidizing customer-members who do not seek an AMI meter.

BLACK & VEATCH | Appendix 1-1: Review of U.S. “Opt-Out” Programs

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Appendix 1-2: Decreased Services for “Opt-Out” CustomerMembers

BLACK & VEATCH | Appendix 1-2: Decreased Services for “Opt-Out” Customer-Members

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Appendix 1-3: Overview of “Opt-Out” Incurred Costs by Scenario
The cost scenario analyses for non-standard metering arrangements are presented below. The detailed cost estimates were utilized to develop both up-front and on-going charges. These cost estimates are conservative as other costs yet to be identified may increase the costs proposed in this filing.       Table 1: Upfront & Monthly Costs for Scenario 1: Analog Table 2: Upfront & Monthly Costs for Scenario 2: Digital Table 3: Upfront & Monthly Costs for Scenario 3: ERT/AMR Table 4: Upfront & Monthly Costs for Scenario 4: Interval Data/Modem Meter (Telephone LinePOTS) Table 5: Upfront & Monthly Costs for Scenario 5: Smart Meter: Limited Frequency Table 6: Upfront & Monthly Costs for Scenario 6: Probe Digital Interval Meter

BLACK & VEATCH | Appendix 1-3: Overview of “Opt-Out” Incurred Costs by Scenario

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Costs Incurred for Scenario 1: Analog
SMECO anticipates that both up-front and monthly operating costs will be incurred to facilitate Scenario 1: Analog as detailed in Table 1. Table 1
UP-FRONT COSTS
Installation/system setup Cost of Meter Installation of Non- AMI Meter Removal of Non-AMI Meter (Exit Fee) Additional requirements for system functionality Cost: Cost: $0.00 $0.00 $26.79 $26.79 $26.79 $26.79 Cost: $0.00 $26.79 $26.79

Upfront & Monthly Costs for Scenario 1: Analog
SCENARIO 1: ANALOG
Opt-Out Costs Relation to AMI Operational Benefit 1% 2% 5%

Total initial installation labor cost Costs for system operations Meter Inventory/Facility IT Storage &Hardware Cost to purchase Handhelds Total cost for system operations Customer support for Opt - Out Increased Calls from Customers for Opt-Out Total Labor Cost Total Up-Front Costs

$53.58 $53.58 $53.58 $5.25 $2.63 $3.59 $1.80 $27.55 $13.78 $36.40 $18.20 $1.05 $0.72 $5.51 $7.28

Avoided replacement of handhelds

$15.34 $12.26 $10.41 $15.34 $12.26 $10.41 $105.32 $84.03 $71.27

ONGOING COSTS
Monthly meter reading and other costs Cost to perform monthly manual meter read Cost to perform change of names, check reads, or re-reads Cost to perform monthly manual meter read via telephone line Cost for annual maintenance for existing meter reading system annual Cost to perform turn on and turn offs Cost to purchase Non-AMI meter due to failure Cost to purchase Non-AMI meter due to new customers growth who opt out Cost to perform truck roll cost for Non-AM meter related I failures Cost to perform truck roll cost for to install Non-AMI meter for new customers Cost to perform a truck roll to reconnect a disconnect DNP customer Cost to handle billing exceptions for Opt-Out customers Truck Roll to complete Utility requested investigates Cost to call back an Opt-Out customers with read Cost to perform a single lights out trip to Opt-Out customer premises Total meter reading and other costs FTE Costs for system operations Customer Education Materials and Mailings IT - MVRS/MV90 Maintenance and application integration Operation of System (upload/download) Changes to Rate/Revenue to track separate billed revenues Total FTE cost for system operations Reduction in AMI functionality costs Cost for decrease energy theft detection for opt-out customers Cost for overtime expenses related to restoration for opt out premises Cost of delay in restoration for opt-out customer premises Total cost for system operations Cost per opt out customer per month Elimination of On-cycle manual meter reading expenses Elimination of Off-cycle manual meter reading expenses Elimination of POTS and Cell Phones Existing meter reading system annual maintenance costs Reduce physical disconnect field trips Avoided meter capital -- Failures Avoided meter capital -- Growth Reduction in meter failure field trips Avoided meter labor -- Growth Reduction in labor to manage collections process Reduction in number of billing exceptions Call backs on check reads Reduced single lights-out trips $26.79 $26.79 $26.79 $0.29 $0.29 $0.29 $0.00 $0.00 $0.00 $1.60 $0.80 $0.32 $0.10 $0.10 $0.10 $0.06 $0.06 $0.06 $0.07 $0.07 $0.07 $0.11 $0.11 $0.11 $0.13 $0.13 $0.13 $0.15 $0.15 $0.15 $0.05 $0.05 $0.05 $0.01 $0.01 $0.01 $0.00 $0.00 $0.00 $0.26 $0.26 $0.26 $29.61 $28.81 $28.34 $1.37 $0.91 $2.28 $0.36 $4.92 Faster detection of and collection on theft Improved outage restoration Increased Revenue from improved outage restoration $0.38 $0.01 $0.02 $0.41 $0.68 $0.46 $1.14 $0.18 $2.46 $0.38 $0.01 $0.02 $0.41 $0.27 $0.18 $0.46 $0.07 $0.98 $0.38 $0.01 $0.02 $0.41

$34.94 $31.68 $29.73

BLACK & VEATCH | Appendix 1-3: Overview of “Opt-Out” Incurred Costs by Scenario

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Costs Incurred for Scenario 2: Digital
SMECO anticipates that both up-front and monthly operating costs will be incurred to facilitate Scenario 2: Digital as detailed in Table 2. Table 2 Upfront & Monthly Costs for Scenario 2: Digital

SCENARIO 2: DIGITAL
Opt-Out Costs Relation to AMI Operational Benefit 1% 2% 5% Cost: $0.00 $26.79 $26.79

UP-FRONT COSTS
Installation/system setup Cost of Meter Installation of Non- AMI Meter Removal of Non-AMI Meter (Exit Fee) Additional requirements for system functionality Cost: Cost: $0.00 $0.00 $26.79 $26.79 $26.79 $26.79

Total initial installation labor cost Costs for system operations Meter Inventory/Facility IT Storage &Hardware Cost to purchase Handhelds Total cost for system operations Customer support for Opt - Out Increased Calls from Customers for Opt-Out Total Labor Cost Total Up-Front Costs

$53.58 $53.58 $53.58 $5.25 $2.63 $3.59 $1.80 $27.55 $13.78 $36.40 $18.20 $1.05 $0.72 $5.51 $7.28

Avoided replacement of handhelds

$15.34 $12.26 $10.41 $15.34 $12.26 $10.41 $105.32 $84.03 $71.27

ONGOING COSTS
Monthly meter reading and other costs Cost to perform monthly manual meter read Cost to perform change of names, check reads, or re-reads Cost to perform monthly manual meter read via telephone line Cost for annual maintenance for existing meter reading system annual Cost to perform turn on and turn offs Cost to purchase Non-AMI meter due to failure Cost to purchase Non-AMI meter due to new customers growth who opt out Cost to perform truck roll cost for Non-AM meter related I failures Cost to perform truck roll cost for to install Non-AMI meter for new customers Cost to perform a truck roll to reconnect a disconnect DNP customer Cost to handle billing exceptions for Opt-Out customers Truck Roll to complete Utility requested investigates Cost to call back an Opt-Out customers with read Cost to perform a single lights out trip to Opt-Out customer premises Total meter reading and other costs FTE Costs for system operations Customer Education Materials and Mailings IT - MVRS/MV90 Maintenance and application integration Operation of System (upload/download) Changes to Rate/Revenue to track separate billed revenues Total FTE cost for system operations Reduction in AMI functionality costs Cost for decrease energy theft detection for opt-out customers Cost for overtime expenses related to restoration for opt out premises Cost of delay in restoration for opt-out customer premises Total cost for system operations Cost per opt out customer per month Elimination of On-cycle manual meter reading expenses Elimination of Off-cycle manual meter reading expenses Elimination of POTS and Cell Phones Existing meter reading system annual maintenance costs Reduce physical disconnect field trips Avoided meter capital -- Failures Avoided meter capital -- Growth Reduction in meter failure field trips Avoided meter labor -- Growth Reduction in labor to manage collections process Reduction in number of billing exceptions Call backs on check reads Reduced single lights-out trips $26.79 $26.79 $26.79 $0.29 $0.29 $0.29 $0.00 $0.00 $0.00 $1.60 $0.80 $0.32 $0.10 $0.10 $0.10 $0.06 $0.06 $0.06 $0.07 $0.07 $0.07 $0.11 $0.11 $0.11 $0.13 $0.13 $0.13 $0.15 $0.15 $0.15 $0.05 $0.05 $0.05 $0.01 $0.01 $0.01 $0.00 $0.00 $0.00 $0.26 $0.26 $0.26 $29.61 $28.81 $28.34 $1.37 $0.91 $2.28 $0.36 $4.92 Faster detection of and collection on theft Improved outage restoration Increased Revenue from improved outage restoration $0.38 $0.01 $0.02 $0.41 $0.68 $0.46 $1.14 $0.18 $2.46 $0.38 $0.01 $0.02 $0.41 $0.27 $0.18 $0.46 $0.07 $0.98 $0.38 $0.01 $0.02 $0.41

$34.94 $31.68 $29.73

BLACK & VEATCH | Appendix 1-3: Overview of “Opt-Out” Incurred Costs by Scenario

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Costs Incurred for Scenario 3: ERT/AMR
SMECO anticipates that both up-front and monthly operating costs will be incurred to facilitate Scenario 3: Digital as detailed in Table 3. Table 3 Upfront & Monthly Costs for Scenario 3: ERT/AMR

SCENARIO 3: ERT/AMR
Opt-Out Costs Relation to AMI Operational Benefit 1% 2% 5% Cost: $0.00 $26.79 $26.79

UP-FRONT COSTS
Installation/system setup Cost of Meter Installation of Non- AMI Meter Removal of Non-AMI Meter (Exit Fee) Additional requirements for system functionality Cost: Cost: $0.00 $0.00 $26.79 $26.79 $26.79 $26.79

Total initial installation labor cost Costs for system operations Meter Inventory/Facility IT Storage &Hardware Cost to purchase Handhelds Total cost for system operations Customer support for Opt - Out Increased Calls from Customers for Opt-Out Total Labor Cost Total Up-Front Costs

$53.58 $53.58 $53.58 $5.25 $2.63 $3.59 $1.80 $27.55 $13.78 $36.40 $18.20 $1.05 $0.72 $5.51 $7.28

Avoided replacement of handhelds

$15.34 $12.26 $10.41 $15.34 $12.26 $10.41 $105.32 $84.03 $71.27

ONGOING COSTS
Monthly meter reading and other costs Cost to perform monthly manual meter read Cost to perform change of names, check reads, or re-reads Cost to perform monthly manual meter read via telephone line Cost for annual maintenance for existing meter reading system annual Cost to perform turn on and turn offs Cost to purchase Non-AMI meter due to failure Cost to purchase Non-AMI meter due to new customers growth who opt out Cost to perform truck roll cost for Non-AM meter related I failures Cost to perform truck roll cost for to install Non-AMI meter for new customers Cost to perform a truck roll to reconnect a disconnect DNP customer Cost to handle billing exceptions for Opt-Out customers Truck Roll to complete Utility requested investigates Cost to call back an Opt-Out customers with read Cost to perform a single lights out trip to Opt-Out customer premises Total meter reading and other costs FTE Costs for system operations Customer Education Materials and Mailings IT - MVRS/MV90 Maintenance and application integration Operation of System (upload/download) Changes to Rate/Revenue to track separate billed revenues Total FTE cost for system operations Reduction in AMI functionality costs Cost for decrease energy theft detection for opt-out customers Cost for overtime expenses related to restoration for opt out premises Cost of delay in restoration for opt-out customer premises Total cost for system operations Cost per opt out customer per month Elimination of On-cycle manual meter reading expenses Elimination of Off-cycle manual meter reading expenses Elimination of POTS and Cell Phones Existing meter reading system annual maintenance costs Reduce physical disconnect field trips Avoided meter capital -- Failures Avoided meter capital -- Growth Reduction in meter failure field trips Avoided meter labor -- Growth Reduction in labor to manage collections process Reduction in number of billing exceptions Call backs on check reads Reduced single lights-out trips $26.79 $26.79 $26.79 $0.29 $0.29 $0.29 $0.00 $0.00 $0.00 $1.60 $0.80 $0.32 $0.10 $0.10 $0.10 $0.06 $0.06 $0.06 $0.07 $0.07 $0.07 $0.11 $0.11 $0.11 $0.13 $0.13 $0.13 $0.15 $0.15 $0.15 $0.05 $0.05 $0.05 $0.01 $0.01 $0.01 $0.00 $0.00 $0.00 $0.26 $0.26 $0.26 $29.61 $28.81 $28.34 $1.37 $0.91 $2.28 $0.36 $4.92 Faster detection of and collection on theft Improved outage restoration Increased Revenue from improved outage restoration $0.38 $0.01 $0.02 $0.41 $0.68 $0.46 $1.14 $0.18 $2.46 $0.38 $0.01 $0.02 $0.41 $0.27 $0.18 $0.46 $0.07 $0.98 $0.38 $0.01 $0.02 $0.41

$34.94 $31.68 $29.73

BLACK & VEATCH | Appendix 1-3: Overview of “Opt-Out” Incurred Costs by Scenario

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Southern Maryland Electric Cooperative | “OPT-OUT” ALTERNATIVE COSTS & PROPOSAL

Costs Incurred for Scenario 4: Interval Data/Modem Meter (Telephone Line-POTS)
SMECO anticipates that both up-front and monthly operating costs will be incurred to facilitate Scenario 4: Digital as detailed in Table 4. Table 4 Upfront & Monthly Costs for Scenario 4: Interval Data/Modem Meter (Telephone Line-POTS)

SCENARIO 4: Interval Data/Modem Meter (Telephone Line-POTS)
Opt-Out Costs Relation to AMI Operational Benefit 1% 2% 3%

UP-FRONT COSTS
Installation/system setup Cost of Meter Installation of Non- AMI Meter Removal of Non-AMI Meter (Exit Fee) Additional requirements for system functionality $767.00 $56.49 $56.49 $312.67 Total initial installation labor cost Costs for system operations Meter Inventory/Facility IT Storage &Hardware Cost to purchase Handhelds Total cost for system operations Customer support for Opt - Out Increased Calls from Customers for Opt-Out Total Labor Cost Total Up-Front Costs $312.67 $312.67 $1,192.65 $1,192.65 $1,192.65 $5.25 $3.59 $34.87 $43.71 $2.63 $1.80 $17.43 $21.86 $1.05 $0.72 $6.97 $8.74 $767.00 $56.49 $56.49 $767.00 $56.49 $56.49

Avoided replacement of handhelds

$15.34 $12.26 $10.41 $15.34 $12.26 $10.41 $1,251.70 $1,226.76 $1,211.80

ONGOING COSTS
Monthly meter reading and other costs Cost to perform monthly manual meter read Cost to perform change of names, check reads, or re-reads Cost to perform monthly manual meter read via telephone line Cost for annual maintenance for existing meter reading system annual Cost to perform turn on and turn offs Cost to purchase Non-AMI meter due to failure Cost to purchase Non-AMI meter due to new customers growth who opt out Cost to perform truck roll cost for Non-AM meter related I failures Cost to perform truck roll cost for to install Non-AMI meter for new customers Cost to perform a truck roll to reconnect a disconnect DNP customer Cost to handle billing exceptions for Opt-Out customers Truck Roll to complete Utility requested investigates Cost to call back an Opt-Out customers with read Cost to perform a single lights out trip to Opt-Out customer premises Total meter reading and other costs FTE Costs for system operations Customer Education Materials and Mailings IT - MVRS/MV90 Maintenance and application integration Operation of System (upload/download) Changes to Rate/Revenue to track separate billed revenues Total FTE cost for system operations Reduction in AMI functionality costs Cost for decrease energy theft detection for opt-out customers Cost for overtime expenses related to restoration for opt out premises Cost of delay in restoration for opt-out customer premises Total cost for system operations Cost per opt out customer per month Elimination of On-cycle manual meter reading expenses Elimination of Off-cycle manual meter reading expenses Elimination of POTS and Cell Phones Existing meter reading system annual maintenance costs Reduce physical disconnect field trips Avoided meter capital -- Failures Avoided meter capital -- Growth Reduction in meter failure field trips Avoided meter labor -- Growth Reduction in labor to manage collections process Reduction in number of billing exceptions Call backs on check reads Reduced single lights-out trips $0.00 $0.29 $22.00 $1.91 $0.10 $0.06 $0.07 $0.11 $0.13 $0.15 $0.05 $0.03 $0.00 $0.26 $25.15 $1.37 $0.91 $2.28 $0.36 $4.92 Faster detection of and collection on theft Improved outage restoration Increased Revenue from improved outage restoration $0.38 $0.01 $0.02 $0.41 $30.47 $0.00 $0.29 $22.00 $0.96 $0.10 $0.06 $0.07 $0.11 $0.13 $0.15 $0.05 $0.03 $0.00 $0.26 $24.19 $0.68 $0.46 $1.14 $0.18 $2.46 $0.38 $0.01 $0.02 $0.41 $27.06 $0.00 $0.29 $22.00 $0.38 $0.10 $0.06 $0.07 $0.11 $0.13 $0.15 $0.05 $0.03 $0.00 $0.26 $23.62 $0.27 $0.18 $0.46 $0.07 $0.98 $0.38 $0.01 $0.02 $0.41 $25.01

BLACK & VEATCH | Appendix 1-3: Overview of “Opt-Out” Incurred Costs by Scenario

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Southern Maryland Electric Cooperative | “OPT-OUT” ALTERNATIVE COSTS & PROPOSAL

Costs Incurred for Scenario 5: Smart Meter: Limited Frequency
SMECO anticipates that both up-front and monthly operating costs will be incurred to facilitate Scenario 5: Digital as detailed in Table 5. Table 5 Upfront & Monthly Costs for Scenario 5: Smart Meter: Limited Frequency

SCENARIO 5: Smart Meter: Limited Frequency
Opt-Out Costs Relation to AMI Operational Benefit 1% 2% 5% Cost: $0.00 $39.29 $39.29

UP-FRONT COSTS
Installation/system setup Cost of Meter Installation of Non- AMI Meter Removal of Non-AMI Meter (Exit Fee) Additional requirements for system functionality Cost: Cost: $0.00 $0.00 $39.29 $39.29 $39.29 $39.29

Total initial installation labor cost Costs for system operations Meter Inventory/Facility IT Storage &Hardware Cost to purchase Handhelds Total cost for system operations Customer support for Opt - Out Increased Calls from Customers for Opt-Out Total Labor Cost Total Up-Front Costs

$78.58 $78.58 $78.58 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

Avoided replacement of handhelds

$15.34 $12.26 $10.41 $15.34 $12.26 $10.41 $93.92 $90.84 $88.99

ONGOING COSTS
Monthly meter reading and other costs Cost to perform monthly manual meter read Cost to perform change of names, check reads, or re-reads Cost to perform monthly manual meter read via telephone line Cost for annual maintenance for existing meter reading system annual Cost to perform turn on and turn offs Cost to purchase Non-AMI meter due to failure Cost to purchase Non-AMI meter due to new customers growth who opt out Cost to perform truck roll cost for Non-AM meter related I failures Cost to perform truck roll cost for to install Non-AMI meter for new customers Cost to perform a truck roll to reconnect a disconnect DNP customer Cost to handle billing exceptions for Opt-Out customers Truck Roll to complete Utility requested investigates Cost to call back an Opt-Out customers with read Cost to perform a single lights out trip to Opt-Out customer premises Total meter reading and other costs FTE Costs for system operations Customer Education Materials and Mailings IT - MVRS/MV90 Maintenance and application integration Operation of System (upload/download) Changes to Rate/Revenue to track separate billed revenues Total FTE cost for system operations Reduction in AMI functionality costs Cost for decrease energy theft detection for opt-out customers Cost for overtime expenses related to restoration for opt out premises Cost of delay in restoration for opt-out customer premises Total cost for system operations Cost per opt out customer per month Elimination of On-cycle manual meter reading expenses Elimination of Off-cycle manual meter reading expenses Elimination of POTS and Cell Phones Existing meter reading system annual maintenance costs Reduce physical disconnect field trips Avoided meter capital -- Failures Avoided meter capital -- Growth Reduction in meter failure field trips Avoided meter labor -- Growth Reduction in labor to manage collections process Reduction in number of billing exceptions Call backs on check reads Reduced single lights-out trips $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $1.37 $0.00 $0.00 $0.00 $1.37 Faster detection of and collection on theft Improved outage restoration Increased Revenue from improved outage restoration $0.00 $0.00 $0.00 $0.00 $1.37 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.68 $0.00 $0.00 $0.00 $0.68 $0.00 $0.00 $0.00 $0.00 $0.68 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.27 $0.00 $0.00 $0.00 $0.27 $0.00 $0.00 $0.00 $0.00 $0.27

BLACK & VEATCH | Appendix 1-3: Overview of “Opt-Out” Incurred Costs by Scenario

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Southern Maryland Electric Cooperative | “OPT-OUT” ALTERNATIVE COSTS & PROPOSAL

Costs Incurred for Scenario 6: Probe Digital Interval Meter
SMECO anticipates that both up-front and monthly operating costs will be incurred to facilitate Scenario 6: Digital as detailed in Table 6. Table 6 Upfront & Monthly Costs for Scenario 6: Probe Digital Interval Meter

SCENARIO 6: Probe Digital Interval Meter
Opt-Out Costs Relation to AMI Operational Benefit 1% 2% 5% Cost: $285.00 $26.79 $26.79

UP-FRONT COSTS
Installation/system setup Cost of Meter Installation of Non- AMI Meter Removal of Non-AMI Meter (Exit Fee) Additional requirements for system functionality Cost: Cost: $285.00 $285.00 $26.79 $26.79 $26.79 $26.79

Total initial installation labor cost Costs for system operations Meter Inventory/Facility IT Storage &Hardware Cost to purchase Handhelds Total cost for system operations Customer support for Opt - Out Increased Calls from Customers for Opt-Out Total Labor Cost Total Up-Front Costs

$338.58 $338.58 $338.58 $5.25 $3.59 $64.36 $73.20 $2.63 $1.80 $32.18 $36.60 $1.05 $0.72 $12.87 $14.64

Avoided replacement of handhelds

$15.34 $12.26 $10.41 $15.34 $12.26 $10.41 $427.12 $387.44 $363.63

ONGOING COSTS
Monthly meter reading and other costs Cost to perform monthly manual meter read Cost to perform change of names, check reads, or re-reads Cost to perform monthly manual meter read via telephone line Cost for annual maintenance for existing meter reading system annual Cost to perform turn on and turn offs Cost to purchase Non-AMI meter due to failure Cost to purchase Non-AMI meter due to new customers growth who opt out Cost to perform truck roll cost for Non-AM meter related I failures Cost to perform truck roll cost for to install Non-AMI meter for new customers Cost to perform a truck roll to reconnect a disconnect DNP customer Cost to handle billing exceptions for Opt-Out customers Truck Roll to complete Utility requested investigates Cost to call back an Opt-Out customers with read Cost to perform a single lights out trip to Opt-Out customer premises Total meter reading and other costs FTE Costs for system operations Customer Education Materials and Mailings IT - MVRS/MV90 Maintenance and application integration Operation of System (upload/download) Changes to Rate/Revenue to track separate billed revenues Total FTE cost for system operations Reduction in AMI functionality costs Cost for decrease energy theft detection for opt-out customers Cost for overtime expenses related to restoration for opt out premises Cost of delay in restoration for opt-out customer premises Total cost for system operations Cost per opt out customer per month Elimination of On-cycle manual meter reading expenses Elimination of Off-cycle manual meter reading expenses Elimination of POTS and Cell Phones Existing meter reading system annual maintenance costs Reduce physical disconnect field trips Avoided meter capital -- Failures Avoided meter capital -- Growth Reduction in meter failure field trips Avoided meter labor -- Growth Reduction in labor to manage collections process Reduction in number of billing exceptions Call backs on check reads Reduced single lights-out trips $56.49 $0.29 $0.00 $2.26 $0.10 $0.31 $0.36 $0.11 $0.13 $0.15 $0.05 $0.03 $0.00 $0.26 $60.52 $1.37 $0.91 $2.28 $0.36 $4.92 Faster detection of and collection on theft Improved outage restoration Increased Revenue from improved outage restoration $0.38 $0.01 $0.02 $0.41 $65.85 $56.48 $0.29 $0.00 $1.13 $0.10 $0.31 $0.36 $0.11 $0.13 $0.15 $0.05 $0.03 $0.00 $0.26 $59.39 $0.68 $0.46 $1.14 $0.18 $2.46 $0.38 $0.01 $0.02 $0.41 $62.25 $56.48 $0.29 $0.00 $0.45 $0.10 $0.31 $0.36 $0.11 $0.13 $0.15 $0.05 $0.03 $0.00 $0.26 $58.71 $0.27 $0.18 $0.46 $0.07 $0.98 $0.38 $0.01 $0.02 $0.41 $60.10

BLACK & VEATCH | Appendix 1-3: Overview of “Opt-Out” Incurred Costs by Scenario

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