Pepco ready to deploy 'smart meters' in D.C.; pricing still up in the air

By Danielle Douglas
Capital Business Staff Writer
Sunday, September 12, 2010; 6:00 PM

Pepco is drawing closer to the full-scale deployment of "smart meters" throughout the District, having rolled out 750 of the energy-tracking devices early this month and releasing preliminary findings from its metering pilot program last week.

But how electricity use would be priced remains unresolved.

The D.C. Public Service Commission, which gave Pepco the go-ahead to install the meters in January, is still mulling over the utility's application to implement dynamic, or time-of-use, pricing, in which electricity would cost more during times of heavy demand.

Regulators in Maryland decided this month to reject a similar application. Instead, Maryland is requiring the utility to offer rebates to customers who reduce usage at peak periods.

"The risk is too great that customers will opt for critical peak pricing with the hope or expectation of lowering their bills, only to find that, at least initially, the [peak pricing] rate results in higher bills," wrote members of the Maryland Public Service Commission, explaining their ruling.

Critical peak pricing is one of the three payment options Pepco wants to offer customers. During the two-year pilot program, the utility gave 900 residential participants the choice of dynamic pricing, rebates or hourly pricing. Under the first option, prices shot up fivefold four hours per day when consumption was the highest and was discounted for the remainder of the time. The second option provided rebates to customers who curbed their usage during peak hours, while the third plan was based on wholesale market pricing.

According to the report, more than 90 percent of all participants, regardless of their plan, saved money, with an average 12-month savings of $43.83. Part of the savings could be explained by lower electricity prices this year compared with last year. But customers who opted for the dynamic pricing plan had the greatest peak-demand reductions, some by 34 percent in the summertime and by 13 percent in the winter, the utility said.

Proponents of time-of-use pricing say a carrot-and-stick approach will result in the biggest gains. Consumer advocates, however, remain leery of heaping additional costs onto customers in the midst of a struggling economy. Pepco argues that multiple pricing plans will mitigate some of the risks, by the very nature of diversification.

"People will respond to receiving the right signals, the right prices. There will be energy savings and peak usage reductions," said Thomas Graham, president of Pepco Region, at a press conference last week announcing the results of the study. Until a decision is made on the pricing plans, customers with smart meters will continue to pay the same rates they are currently charged.

Even if the D.C. commission approves Pepco's pricing proposal, challenges will persist. While Pepco is the only distribution utility in the District, the utility competes with others to sell the electricity that run through its lines. Pepco may be able to provide dynamic pricing to all of its customers on the default service plan, but that's only about one third of the utility's load in the District, according to D.C. Public Service Commissioner Richard E. Morgan.

Many commercial customers, which constitute a large majority of the city's load, have chosen other providers whose prices are not regulated by the commission. Rates offered by those providers, Morgan noted, have little to no variation. Alternative service providers could offer dynamic pricing, but "issues regarding access to data about customer loads would need to be resolved," he said.

What's more, there is a need to coordinate dynamic pricing with the wholesale electricity market operated by PJM Interconnection, the northeast regional grid operator.

"Frankly, we're not aware of any other region of the country that has figured out the perfect solution to that problem," Morgan said. "How to make it possible to coordinate between the retail and wholesale markets is still something that we need to explore."

Regardless of those concerns, Pepco is moving forward with the installation of its smart meters. Graham said the company deployed the 750 meters at the beginning of the month to test the devices' two-way communication capabilities. More meters will be installed late in the fourth quarter, with the full infrastructure slated to be in place by the end of 2011.

Last year, Pepco was awarded a $168.1 million grant as a part of the Energy Department's stimulus program to promote smart-grid technology. That funding will go toward the full $300 million cost of deploying the meters.

"Smart meters are the ultimate enabler for the discussion of renewables, for electric vehicles," Graham said. "This opens the door."

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