As you may know, the Maryland Public Service Commission's denial of Baltimore Gas and Electric Co.'s smart meter proposal a month ago caused a stir. (See item 59 in the preceding link.) Til then, objections largely had come from pockets of consumers receiving smart meters, not from state commissions considering rate cases.

BGE, an investor-owned utility, is back with a refurbished proposal, set for an Aug. 5 hearing before the Maryland PSC. And because the proposal raises fundamental questions about smart meter programs, it's worthy of review.

In April, upon winning a $200 million stimulus grant, the utility said it would support a "comprehensive smart grid initiative" to install new electric and gas meters across its service territory of 1.2 electricity customers and 640,000 natural gas customers. The advanced metering infrastructure (AMI) would save its customers $2.6 billion over the life of the project, according to the utility. The utility sought to recover $835 million in costs by applying a surcharge to its customers' bills.

After all, BGE said, "26 utilities in 15 states have installed more than 16 million smart meters, a number projected to double by the end of next year ... these meters have performed at or above expectations and can be upgraded or adapted to newer technologies as they are introduced."

On June 21, the Maryland PSC said, basically, "not so fast." The commission questioned the utility's business case, rejected its proposed surcharge for cost recovery and turned down mandatory dynamic pricing.

"We find the business case for this proposal untenable," the PSC's denial said. "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. We are not persuaded that this bargain is cost-effective or serves the public interest."

According to the commission, the smart meter implementation would not enhance the utility's transmission and distribution systems, nor would the smart meters communicate with in-home devices without further, substantial expenses. To deal with mandatory time-of-use rates, BGE customers would need education and in-home displays.

The utility's proposed "tracker surcharge" would inappropriately place all financial risk on BGE customers, said the commission, which wrote: "We decline here to depart from the core principle that utilities recover the cost of infrastructure investments through distribution rates."

Finally, the PSC said, the business case was flawed, as it did not account for $100 million in stranded assets (existing meters), $60 million for a new billing system and another $100 million for in-home displays.

"We certainly acknowledge that Maryland can be described as a hostile regulatory environment," wrote Macquarie Research the next day, in a note to investors.

"Hallelujah!" wrote John Anderson, president and CEO of the Electricity Consumers Resource Council. (Read our interview with ELCON's Anderson.)

Three weeks later, BGE submitted a revamped proposal, "to address some misunderstandings about our proposal, respond to the PSC's concerns, strengthen an already robust plan and ... retain a coveted $200 million grant." BGE suggested a "hybrid approach" to its tracker surcharge to provide PSC oversight (a tracker surcharge would cover 25 percent of the cost, with the balance covered by rate increases over time). TOU pricing would be optional. And the utility would bolt on "a comprehensive, customer-focused education and outreach plan." BGE suggested that without a favorable decision by July 30, the $200 million federal grant would vanish.

First, it's not clear that the grant will vanish on July 30. Moreover, the new proposal did not initially strike the Maryland Office of People's Counsel - the state consumer watchdog - as substantively different from the original, according to People's Counsel Paula Carmody.

"The commission got it right," said Carmody. "It needs to determine the real costs, benefits and impacts of the proposal, then it can take a look at the federal grant and its value."

"One of the messages for other states is to move beyond the concept and vision and focus on a local level on these proposals and their costs and benefits," Carmody added. "This is the type of evaluation that should be done for expensive investments in technology changes."

Carmody suggested that BGE could wring equivalent efficiencies from upgrades to its T&D system without targeting consumer behavioral changes, based on the varying impacts smart meters and TOU pricing could have on a heterogeneous population.

"One size doesn't fit all," Carmody said. "Flexibility is the key."

As for BGE's education plan, Carmody asked, rhetorically, "What are we asking of consumers? What's the end game?"

Should an education plan address the basics of how electricity is generated, transmitted and distributed? Should it discuss the disproportionately high cost of producing and delivering peak capacity? What actions are consumers expected to take in light of such information?

Readers! What are the issues? Who has it right, BGE or the PSC?

Phil Carson
Editor-in-chief
Intelligent Utility Daily
pcarson@energycentral.com
303-228-4757