BGE sets rewards to limit home use

Incentives aim to reduce electricity demand at peak times, persuade customers to conserve

January 23, 2007|By Paul Adams | Paul Adams,Sun reporter

Baltimore Gas and Electric will announce today a plan intended to reduce power demand at peak times and give customers more control over soaring energy bills by installing "smart" meters at every home and boosting incentives for conservation.

BGE will offer new financial rewards for customers to shift their power use to off-peak hours and will expand existing programs that pay customers to let BGE remotely control use of air conditioners and water heaters on days when energy demand is high.

The plans will be filed with the state Public Service Commission today. They will be paired with stepped-up conservation programs that pay customers rebates for replacing older appliances with high-efficiency models. The programs will be voluntary and will work only if enough people participate to make a measurable difference in demand on the power grid.

The initiative comes as BGE is phasing in a sharp rate increase that sparked a consumer and political backlash against electricity deregulation last year. It puts the company in step with a growing number of utilities worldwide that are turning to smart meters and other so-called "demand-response" technology to cut costs and trim peak demand for power, which reached a record in BGE territory during last summer's heat wave.

"At the end of the day, you'll pay less than you would have paid had we not done this," said Kenneth W. DeFontes Jr., president of BGE.

The technology works in part by allowing utilities to remotely measure a customer's power use hourly, eliminating the need for meter readers. That makes it easier for utilities to offer a variety of time-of-use pricing schemes that reward customers for, say, not running the dishwasher until evening.

Some critics say utilities might be better off spending their money solely to reduce power consumption rather than on shifting it to different times of day. And there is skepticism that utility customers will want to sort through myriad pricing schemes and take greater control of their energy use, which is a key component of the plan. Phone companies have discovered that many customers prefer the simplicity of a flat rate for local and long-distance calling even though some pay more in the long run.

"Some customers - especially the residential class - I don't think will be interested in it at all and are probably willing to pay just a bit more to keep it simple," said Ken Rose, an independent utility consultant in Columbus, Ohio.

But utility officials and state regulators see the technology as a critical step in managing Maryland's growing energy demand at a time when no new power plants are being constructed.

Maryland imports nearly 30 percent of its power from neighboring states and is especially vulnerable to the volatility of the wholesale energy market.

The market price of electricity can soar from $80 or less per megawatt hour to more than $1,000 during the peak afternoon hours of a heat wave. That's because energy producers must turn on expensive natural gas and oil-powered generators to meet demand at critical times. Those plants might operate less than 100 hours annually but have a disproportionate impact on rates in the deregulated wholesale market, where prices are linked to the most expensive power in use.

Shaving peak demand by just a few percent on a regular basis can reduce the need to build more power plants and lower rates significantly, energy experts and consumer advocates say.

"Those peak times really drive up the price to everyone," said Theresa Czarski of the Maryland Office of the People's Counsel, which represents consumers.

Czarski said the People's Counsel will study BGE's plans to ensure that the potential benefits aren't outweighed by the substantial capital investment required.

BGE will start later this year with a roughly $10 million pilot program to outfit about 5,000 homes with smart-meter technology. A smaller number also will get new programmable thermostats and remote-control switches for appliances. If the program is ultimately rolled out across its service territory, BGE's customers could be asked to pay up to $350 million to $450 million for new equipment, with the expectation of getting a much larger return over time. The program's cost would be factored into the utility's electricity delivery charge.

Cost estimates are difficult because the company has not selected vendors for some aspects of the program. A similar program by Pacific Gas & Electric in California resulted in a temporary 1 percent rate increase, though proponents say the program will pay for itself several times over.

"We wouldn't do any of these programs if we didn't think they were going to save money," DeFontes said.

Industry analysts say success depends on whether the financial incentives are large enough to get people to participate.

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