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Grill Baby Grill: Baltimore Utility Defends Smart Grid

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Baltimore Gas and Electric has been pitching a new proposal for its smart grid project this week and — we won’t sugar coat it — it’s a tough sell. The state’s regulators, the Maryland Public Service Commission, has been questioning the fundamental tenets of the project, including the utility’s expenditure and cost-recovery plan, the choice of technologies and its readiness to educate consumers and minimize complaints.

On Thursday the commissioners grilled Mark Case, senior vice president of strategy and regulatory affairs at BGE, for most of the day and repeatedly asked him to promise that consumers won’t be saddled with unexpected and high costs after the deployment begins. Case, in turn, stressed that BGE is willing to go through more frequent reviews of its deployment process – twice a year – but that the utility can’t promise that the cost estimates won’t change. As Case put it: “We wouldn’t want to be caught in a gotcha.”

The hearing is round two for BGE, which probably didn’t expect it would have to fight this hard to get approval. It was awarded a DOE grant to help pay for the project, and carried out pilot projects to show that consumers can cut their utility bills if they know the savings they could achieve. But the commission thought differently and rejected the utility’s proposal in June, saying the project could cost ratepayers way too much money and that BGE needs to invest more of its own money.

“The proposal asks BGE’s ratepayers to take significant financial and technological risks and adapt to categorical changes in rate design, all in exchange for savings that are largely indirect, highly contingent and a long way off,” according to the commission’s ruling. Ouch.

BGE proposes to roll out smart meters, a communication network and incentive programs to encourage consumers to conserve energy. The initial proposal would’ve required rate increases annually over 15 years and allow the utility to charge higher rates during peak hours. The project, in which meter installation would take place from 2011-14, would cost $835 million over 15 years. The utility was awarded a $200 million federal grant, which is now in question, for offsetting the project’s cost.

In the revised plan, the company proposes what it calls a hybrid approach. It would recoup 25 percent of the cost it expects to incur by collecting surcharges from years 2011-14. It would collect the rest starting in 2015 by going through the usual process of asking the commission to approve rate increases.  One commissioner noted today that the revised plan still puts too much burden and consumers and wonders why BGE isn’t willing to bear more financial risks.

Case argues that the new proposal does expose the company to a greater possibility of earning losses and, besides, BGE couldn’t come up with a complete different cost-and-payment plan given the short amount of time within which it had to file its new proposal. The utility has said that it could lose the $200 million DOE grant soon if it doesn’t receive the commission’s approval.

Some commissioners also wonder about the timing of deploying smart technologies, noting that those technologies are fairly new and would likely require upgrades later, which would only require consumers to pay for them. Several of them point out that appliances with two-way communication technologies aren’t likely to be widely available until several years from now.

Case, for his part, emphasizes that putting in a smart grid would lead to $2.5 billion in savings for its 1.2 million customers over 15 years. It’s a number that is lower than the $2.6 billion it previously trumpeted, by the way. The savings translate into 23 times the amount that its customers would have to pay to offset the project’s cost, Case adds.

“Customers have a huge upside. BGE doesn’t have that same reward opportunity,” Case argues.

The hearing is scheduled to continue on Friday.

For more research on the smart grid check out GigaOM Pro (subscription required):

Report: Open Source & the Smart Grid

Home Energy Management: Consumer Attitudes and Choices

Cisco Seizes Smart Grid Low Hanging Fruit

Image courtesy of D’arcy Norman.

3 Responses to “Grill Baby Grill: Baltimore Utility Defends Smart Grid”

  1. The BGE Domino is Down

    On page 15 of ORDER NO. 83531, issued by the PUBLIC SERVICE COMMISSION OF MARYLAND, on the 13th day of August, 2010, I found that “BGE acknowledges, however, that the Company’s response was designed primarily to mitigate risks, rather than to allocate them. And, indeed, the Company does not believe it should share in the risk:”

    On page 17 it adds that “… the Company expects full cost recovery, with no risks or contingencies, whether or not the benefits materialize.

    On page 45, it further adds “BGE expresses genuine enthusiasm throughout for the opportunities the “smart grid” offers for the Company and its customers, but continues to argue that the Company should not be expected to bear any of the risk that the costs to customers might fail to yield benefits… But BGE concedes, as it must, that the Company’s responses are designed primarily to mitigate the risks to customers, not to allocate them between the Company and its customers.”

    On page 47, we find the key response of the PSC “… one way or another, customers must achieve some level of supply-side benefits –perhaps only a fraction of what BGE projects – or they risk paying in full for something they have not received.”

    The conclusion of the ORDER has denied BGE full recovery, as it states that “… at the time that the Company has delivered a cost-effective AMI system, the Company may seek cost recovery into base rates.”

  2. The real problem in Maryland and Hawaii with Big-Band AMIs and in Boulder with the Smart Grid is the lack of restructuring support the initiation of the transformation of the power industry towards a vision where the customer is first.

    The propose restructuring separates the industry in two simple systems that mutually reinforce each other. The priority regulated T&D Grid system, which will have a regulated compact with an obligation to deliver electricty of commercial quality and a complementary competitive Enterprise system which will handle non Big-Bang AMIs.

    Instead of having roll outs of smart meters at the beginning of the process, they occur in synch when ‘smart’ devices with killing applications are also rolled out in large quantities into the customers.