Dumb decision on smart meters

Our view: PSC's rejection of BGE's smart grid proposal puts a pending federal grant at risk and raises concerns that regulators are being too cautious in charting the state's energy future

June 22, 2010

Considering the potential of smart meters to promote residential energy conservation, it would difficult for even the most hardened skeptic of Baltimore Gas and Electric Co. to be pleased with the Maryland Public Service Commission's rejection of the program. If a so-called smart grid is a critical part of this nation's energy future, the state's chief regulator has just ensured that Baltimore-area utility customers stay securely anchored to the past — a more vulnerable position than the PSC seems to realize.

What did BGE want? To install smart meters in every business and home to keep track of how much energy is being used and wirelessly transmit that information to a central office. With that kind of monitoring available, customers could voluntarily cut back on peak summer days at an average potential savings of $100 per year.

But the benefits transcend those rebates. They give customers a powerful incentive to conserve and allow BGE to make smarter decisions about how electricity is distributed. There would be less waste, better real-time information on power outages, more accurate billing, and, if the utility's estimates are correct, meter-aided conservation would keep everyone's rates lower by reducing the need to build additional capacity.

BGE's proposal had controversial elements and was, admittedly, built on a lot of assumptions. Customers would be expected to pay for smart meters (their $200 cost would have amounted to less than $1.50 a month on bills). The new technology is not without problems ( California's Pacific Gas & Electric has had recent difficulties with its version). And the utility's own investment in the program was relatively modest and risk-free, a point that that seems to have really stuck in the PSC's craw.

Although the PSC's staff recommended conditional approval of smart meters, the commission proved sympathetic to arguments that the elderly and poor would be adversely affected. The PSC also objected to dynamic pricing (rates that are higher in peak periods but lower in off-times), though BGE officials say that's only an optional feature of the program.

Yet none of these concerns justify the commission's labeling smart metering "untenable" and its benefits a long way off. BGE's pilot program demonstrated the upside — 98 percent of participants saved money — and those savings would have been available to everyone in two years. Smart meters are still relatively new, but we are unaware of any place in this country where utility investors, and not customers, are footing the final bill for them.

By rejecting the proposal outright (albeit leaving open the chance to "revisit" the matter if BGE wants to try again), the PSC also casts doubt on the $200 million in federal stimulus funds that would have helped offset the program's cost. That's an opportunity that BGE and Maryland may not see again. While, as the commission noted, that grant shouldn't drive the decision-making, it should not have been ignored either.

Would BGE have stood to profit from smart meters? Absolutely. To expect a for-profit company to make decisions that are not in its financial interest is foolish and naïve. But as business opportunities go, this was hardly a boon to the utility or its parent, Constellation Energy Group. After all, Constellation makes its money by selling (and trading) more power, not less.

Company officials aren't sure what, if anything, to do next. But surely this has to be seen as a setback to Gov. Martin O'Malley's Empower Maryland energy initiative and his stated desire to reduce energy consumption by 15 percent by 2015 and drastically lower greenhouse gas emission. A compromise ought to be negotiated — and before the federal grant slips away.

Under Mr. O'Malley, the PSC has demonstrated a willingness to squeeze Constellation and BGE for rebates and other ratepayer perks where possible. Can it also loosen its grip when doing so serves the best interests of customers? BGE estimates that customers are missing out on $15 million in energy savings every month the program is delayed. The PSC can quibble over details and cost-benefit analyses, but as the 2-year-old pilot project demonstrated, smart meter customers will conserve — if given the opportunity and the incentive.

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