BGE's smart-grid program faces regulatory hurdle

By Danielle Douglas
Monday, July 26, 2010

Michael Fold, a Baltimore area firefighter, never thought of himself as a "tree-hugger." Sure, he recycled, but that was pretty much the extent of his eco-friendly efforts. That is until two years ago, when Baltimore Gas & Electric randomly selected him, along with 1,020 other customers, to participate in its smart grid pilot program aimed at reducing energy consumption.

"You can teach an old dog new tricks; it just takes a bit of effort," said Fold, who had a "smart" meter installed in his house to track his electricity use. "These days I don't run the dishwasher or washer and dryer between 2 p.m. and 7 p.m., peak hours. It's not an inconvenience, just a matter of changing your scheduling."

In the past year, Fold has saved $190, the equivalent of one month's bill.

Like Fold, millions of homeowners are embracing the new meters, as power companies, such as BGE, Dominion Resources and Potomac Electric Power Co., try to lighten the energy load on the nation's overtaxed electrical system. Despite widespread support for smart grid technology -- including a $3.4 billion federal investment -- skepticism persists from groups highlighting the risks and questioning the purported rewards for consumers.

Such apprehension played a role in the Maryland Public Service Commission's ruling in late June to deny BGE's application to expand its metering program to 1.2 million households and businesses. The energy regulator's decision is one of the latest examples of the opposition mounting against utilities.

There are more than 16 million advanced gas and electric meters installed across the country, passing on more detailed information about a property's energy use. Yet wide-scale adoption has been a slow-going process, in part because of the cost of building a two-way communication infrastructure.

Stimulus funding is now fueling an expansion, with 100 smart grid projects in 49 states slated to receive funds from the Department of Energy. BGE was one of six utilities selected to receive a $200 million grant, the maximum allowed under the program. All of the recipients agreed to match the investment with more than $4.7 billion of their own money, which, for some, has meant a push for rate hikes to offset the expense.


Passing on the costs to consumers is proving to be a challenge for BGE. Maryland's Public Service Commission frowned on the company's plan to recoup the $835 million cost of deployment through surcharges of 6 cents a month for the first year, with annual increases over the course of the 15-year program. The agency also objected to mandatory time-of-use pricing, or charging more for high consumption during peak hours, when service is most expensive.

"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," wrote members of the commission in its ruling.

Earlier this month, BGE submitted a revised proposal to the board, stripped of the mandatory rate hikes and featuring a hybrid recovery plan -- 25 percent of costs would be obtained in upfront surcharges and the remaining through standard regulatory increases. A commission hearing has been set for Aug. 6.

"There seems to be a misconception that we should just absorb this cost out of the goodness of our hearts, but nothing we do as a utility can be for free," said Kenneth W. Defontes, president and chief executive of BGE.

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