The Baltimore Gas and Electric Co. has signed an agreement to pursue energy conservation programs "aggressively" in exchange for an opportunity to profit from the resulting cut in energy consumption.
"If this plan plays out as expected, I think we'll see significant impacts," said Public Service Commission spokesman Frank Fulton. "Rate-payers save money; utilities will continue to earn a profit, plus conserving valuable resources and protecting the environment. It's hard to see how anybody would lose."
The agreement is an unprecedented move for BG&E, but follows a similar agreement signed in February by the Potomac Electric Power Co., which serves Maryland's Washington suburbs.
It also is part of a growing trend across the country to allow utilities to profit from programs that lead to lower energy consumption. Similar programs have been implemented in California, Wisconsin and New York.
No specific conservation plans have been worked out, but BG&E spokesman Arthur J. Slusark said the utility hopes the parties to the new agreement will have a conservation plan drafted by late this year.
Those parties, besides the utility and the PSC, include the Office of the People's Counsel, which represents residential consumer interests before the PSC; the Maryland Department of Natural Resources; the Sierra Club; and the Maryland Industrial Group, the Building Owners and Managers Association of Greater Baltimore Inc. and Bethlehem Steel, representing business and industrial consumers.
People's Counsel John M. Glynn said BG&E entered into the negotiations last October with less enthusiasm than did Pepco when that company started negotiations a year ago.
But he said "we're pleased and optimistic that [the agreement] will actually be able to accomplish something in the future. We'll see."
BG&E does now offer a variety of conservation programs, but critics say they consist largely of load-shifting plans, which encourage customers to shift their demand for power to off-peak hours. That delays the need for new generating stations, but does not reduce overall demand.
But until now, there has been little or no profit incentive for utilities to participate in major conservation efforts because, by reducing demand for energy, conservation programs cut utility revenues.
On top of that, said Slusark, while a utility may recover the up-front costs of the conservation programs it does implement, it can take years for the rate-setting mechanism to return the money.
"And, even if you file a rate case [to recover the investment], there is no mechanism to take care of the interest. So you're always behind on what you're investing."
"For conservation to take place in this country, you need a mechanism to recognize the utility's contribution to conservation," he said. Where that recognition is built into the utility's rate base, "you really see conservation programs taking off."
In the six-paragraph memorandum of agreement just signed, BG&E agrees that, if the PSC provides for acceptable means of "cost recovery and incentives . . . the company will implement all cost-effective, feasible conservation and energy efficiency programs."
For example, if the utility launched programs to reduce consumers' costs of installing better home insulation and more energy efficient appliances, it might be allowed to recover the subsidies it provided to the homeowner, and to earn a cash bonus through small, temporary increases in utility rates.
Slusark said the mechanism should encourage the development of bigger conservation efforts, and the use of the latest technologies with high up-front costs, such as high-efficiency lighting.
The new agreement also attempts to curb the adversarial relationship that has traditionally existed among the parties, commiting them to a "collaborative" process to plan and design conservation programs. They also agree to work together to reduce "lengthy and potentially expensive litigation."
"Ninety-nine times out of a hundred, our job is to oppose their rate increases," Glynn said. "But the truth is, the traditional adversarial approach will not work with conservation. A regulatory body cannot manage the company, and it's hard to make them put into place any programs they don't want to put into place.
"My feeling is that it would be a disaster to pass up these conservation opportunities," he said.
Under the agreement, only those conservation issues that cannot be resolved through the collaborative process would be submitted for formal argument and resolution by the PSC.
"Moving out of the adversarial setting is [a] key element" to the agreement, Slusark said. "We all recognize that energy conservation is here, and it's not a fad. It's something we all need to sink our teeth into, so let's sit down and work together instead of criticizing each other's programs."