Tuesday, June 22, 2010

Maryland PSC Rejects Utility's $835 Million "Smart Meter" Plan

The Maryland Public Service Commission yesterday rejected a request of Baltimore Gas & Electric (BGE) to replace, at utility customer expense, all of its gas and electric meters with new "smart" meters. If approved, the BGE request would have cost utility customers more than $850 million.

In its 54 page order, the Maryland Commission rejected the entreaties of the utility and the agency's staff to risk large amounts of customer money on speculative investment, stating:
Although we share BGE’s (and others’) hopes, and even enthusiasm, for the long-run potential and importance of the infrastructure upgrades known colloquially as the “smart grid,” we find the business case for this Proposal untenable. 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, at least not in its current form.
The Maryland Commission noted how the proposal was shifting risk to consumers:
BGE’s Proposal is not solely a request for approval of the deployment of AMI. It also is a request to establish a customer surcharge for advance recovery of the costs of the Proposal, thereby shifting all financial risk to BGE customers. The Company seeks approval to recover those costs through a “tracker” surcharge that would begin appearing on BGE bills for both gas and electric customers almost immediately upon the Commission’s approval of the Proposal, but before any of the infrastructure is installed or any benefits are realized. In addition to recovering the Proposal’s capital and operating costs through the tracker mechanism, the Company proposes that the surcharge be used, among other things, to collect a return on the Company’s net investment under the Proposal, as well as to collect Company “incentives” tied to anticipated wholesale capacity revenue, wholesale energy revenue, and wholesale capacity price mitigation resulting from anticipated changes in its customers’ energy use.... The tracker virtually guarantees that the Company will recover from its ratepayers the prudently incurred costs associated with the Proposal, a profit for its investors, and a portion of certain projected benefits, if they are realized. In other words, with the proposed tracker in place, the Proposal is a “no-lose proposition” for the Company and its investors. In its filings with this Commission, BGE repeatedly has stated that cost recovery via a tracker mechanism is an “essential” element of the Proposal, and that it will withdraw the Proposal if the tracker is not approved.
The staff of the Maryland Commission recommended approval of the plan with minor modifications.

The Maryland Office of People’s Counsel and AARP opposed the proposal on behalf of consumers. They conducted discovery and sponsored expert witnesses who scrutinized the policy and economic underpinnings of the BGE request, and testified against it at hearings.

Expert witnesses on behalf of consumers included Barbara Alexander, former New Hampshire Public Utility Commissioner Nancy Brockway, and Rick Hornby from Synapse Energy Economics.

This is a major defeat for the utility scheme for costly and unproven "smart meter" deployment, and a major victory for consumers in prevailing over the "greenwashing" rhetoric of "smart metering" that too often substitutes for thought and common sense. The case reveals the necessity to go beyond "smart grid" slogans and rhetoric, and base decisions on evidence and sound economics. It illustrates the importance of adequately funded, truly independent utility consumer advocates willing and able to challenge the latest trendy fad pushed by the utility industry at customer expense.

Finally, the case illustrates why state utility regulators, who often are political appointees and not themselves experts, must go beyond rubber-stamping the recommendations of their own agency's senior staff advisors, who often come from the utility sector -- or who may be looking at the "revolving door" to follow up a career in state regulation with a second career working (again) for utilities as their lawyers or consultants.

See the Comments and Reply Comments of NASUCA to U.S. Department of Energy requests for information regarding "Smart Grid" initiatives. In their Reply Comments, NASUCA stated:
"First, the consumers are the ultimate owners of their energy consumption data. The establishment of privacy protections for personal energy information is critical, and the issue must be resolved in favor of the highest degree of consumer protection.

Second, consumers should have the choice to participate in any advanced metering program or in any dynamic pricing schedule that may involve data sharing arrangements.

Third, there are unique differences among electric consumers that must be considered for any Smart Grid deployment.

Fourth, investments made in Smart Grid technologies must be supported by a detailed cost-benefit analysis and subject to evidentiary proceedings and prudence review before costs are passed on to utility consumers."

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