Bge 'Smart Meter' Program Plugs Users Into 21st Century

July 22, 2009|By JAY HANCOCK

The computer in my toaster might be more powerful than the one that guided Apollo 11. But half a century after Robert Noyce launched the cyber age by inventing the silicon-based integrated circuit, computers are curiously scarce in one huge and critical part of daily life.

When power goes out in your neighborhood, Baltimore Gas & Electric has no idea until somebody picks up a phone and tells it. BGE still has to send out meter readers to figure out bills.

Households are clueless about daily electricity price fluctuations. It's like not knowing when strawberries are on sale at Safeway.

What does it cost to run a load of dishes? Bake a turkey? Watch I'm a Celebrity, Get Me Out of Here? Unless you're a power geek, you don't know.

BGE's ambitious "smart meter" program promises to bring the electrical grid up to the technology standards we expect from bank accounts, cell phones and coffee makers.

Done right, it would deliver amazing efficiencies, cutting the use of expensive, peak-use power, reducing pollution, increasing reliability and lowering long-term costs after a modest initial investment.

After a decade of deregulation that turned out to be a payday for electricity sellers and a disaster for consumers, smart meters might give the little guy a chance to fight back.

I'll give possible reasons why BGE and parent Constellation Energy proposed a program that seems against their interests. But first let's look at the big picture.

No market works without good information passing between buyers and sellers about the value of what's exchanged. To take an extreme case, the old Soviet Union collapsed partly because prices set by central planners bore zero relationship to reality, causing shortages, resource misallocation and inefficiency.

But market information about U.S. electricity - at least for residential and small commercial users - hasn't been a whole lot better. On hot summer days, the wholesale price of electricity can spike 10- or 20-fold, but most retail users never know. They pay the same rate as for kilowatts burned at midnight.

BGE's smart meters, by contrast, would track pricing and pay bonuses to people who avoid the most expensive kilowatts.

Eventually smart meters may help consumers distinguish between dirty coal electricity and clean solar power. They'll also enable dryers and other smart appliances with wireless devices that transmit power-usage data to a central source.

The meters won't just be smarter. Consumers will get smarter, too. That'll help everybody.

If we start buying less energy, we can delay building expensive new generation plants. If we learn how much it costs to run each appliance, we'll pay more attention to efficiency and use.

Reducing growth in electricity demand will reduce upward pressure on prices from the generators we already have. Phasing out meter readers will save costs, too. You'll never get an "estimated" bill again. When your power goes out, BGE will know right away. (Getting the company to fix it will pose the same old challenge.)

BGE's claims that smart meters will save consumers billions sound plausible. Peak, summertime electricity is that expensive.

All the benefits certainly justify the price of buying and installing smart meters, which will cost households the equivalent of a cup of coffee a month for 15 years. It'll be even less if BGE gets federal stimulus money to help pay for it.

BGE's proposed program makes sense, too. Smart meters, which have the capability of pricing electricity hour by hour, could easily make life miserable for consumers by burying them in detail. As shown by the derivatives and bonds that precipitated the mortgage collapse, free-market complexity can obscure good economic information just as well as the Soviets ever did.

But BGE's system would be simple, sending consumers one obvious signal to cut consumption on maxed-out days. Even raising the thermostat a degree or two will produce results. Regulators are more likely to approve BGE's plan to reward efficient users with bonuses than a scheme that penalizes inefficient users. In BGE's pilot programs frugal users reaped as much as $40 in rebates on a few "peak use" days.

The state must make sure the system is fair - especially BGE's proposal to drastically raise daytime summer electricity prices for everybody. Mark D. Case, BGE's senior vice president for strategy and regulatory affairs, says prices at other times would be reduced in a way that is "revenue neutral." Make sure they are.

Why would BGE float a proposal that, if all goes as advertised, will deprive it of billions in revenue? The answer is that BGE's profit is based on its investment in assets, not its revenue. The smart grid wouldn't hurt its return.

The tougher question is why BGE parent Constellation, whose generation plants supply BGE with megawatts, would go along.

One reason may be that its plants mainly serve normal, day-to-day consumption, not peak use.

Another is that smart grids are the unstoppable trend of the future, and Constellation may figure it might as well climb on board. The medical industries have signed on to health-care reform. Constellation boss Mayo Shattuck seems to want to shape the new grid rather than stand by and watch it happen.

After all, how much deeper into the 21st century can we go with electricity-delivery technology that was cutting-edge in 1920?

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