Will 'smart' meters be effective? BGE's answer to regulatory conditions might tell

August 14, 2010|Jay Hancock

Baltimore Gas & Electric has bragged since last summer about its proposal to install "smart," computerized electricity meters in 2 million Central Maryland households and businesses.

"We are really at the cusp of one of the greatest transformations of the electric grid ever," Mayo Shattuck, CEO of BGE parent Constellation Energy, said last year. Smart meters won't just give customers more than $2 billion in savings, he said; they'll deliver "reliability, service quality and environmental benefits."

They'll be "wildly beneficial" for BGE households, said company President Ken DeFontes.

If the BGE folks really believe that — if they truly think the project will benefit not just Constellation shareholders but the people who pay the green-and-white utility bills — they'll say "yes" to the conditions regulators imposed on the project late Friday.

If they say "no" to the Public Service Commission's desire to see if the meters are effective before committing ratepayers to pay back the full cost, you'll have grounds for wondering whether the project would have lived up to the advertising.

The answer, due Monday for the program to meet a federal funding deadline, will determine whether BGE customers are among the first in the country to be outfitted en masse with meters that automatically report outages and kilowatt use and help customers adapt to the see-saw prices that characterize the wholesale grid on a hot summer day.

BGE proposed the $800 million project a year ago and landed $200 million in federal stimulus money to help cover the cost. Since then the company has been going back and forth with the Public Service Commission over how to pay for the balance.

There was never any question that BGE customers would get most of the bill, in small increments over several years. BGE says it would cost $3.60 annually per customer, on average. Customer savings would far surpass that if BGE's projections are within even a light year of accuracy.

But BGE wanted the commission to essentially guarantee that customers would pay it back, arguing that it owed that certainty to Constellation's shareholders. And it wanted to start collecting surcharges before smart meters were installed and operating. The PSC, on the other hand, wants to treat smart meter spending like any other capital investment by any other utility, building the cost into rates, delaying reimbursement somewhat and giving itself power to hold back money later if problems develop.

If you don't think the positions are that far apart, you haven't been following Maryland's energy history. The decision BGE is about to make will be colored by a decade's worth of tension between the company and public officials.

If BGE and Constellation aren't confident that future Maryland officials will deal with smart meter reimbursement in good faith, the companies may be thinking of the time last year when the administration of Gov. Martin O'Malley tried to bully them into cutting the pay of CEO Shattuck. They're probably remembering 2006, when General Assembly Democrats tried (unconstitutionally) to purge the Public Service Commission of members that lawmakers saw as pro-industry.

BGE and Constellation may be recalling last year's PSC decision to intrude upon the French EDF Group's proposed investment in Constellation's nuclear division — even though the commission had little or no jurisdiction in the matter.

The commission gets this.

"BGE's perception of risk appears to flow in some part from a fundamental mistrust of the regulatory process in this State, from a sense that BGE is not treated fairly by this commission or in the Maryland regulatory environment," the PSC said in its Friday decision.

But it's not as though Maryland and its public servants lack good reasons to withhold carte blanche approval from BGE and its parent.

Deregulating BGE's power plants gave Constellation the chance to charge whatever the market would bear — in a deeply flawed market. That helped drive up prices in recent years. Constellation is the company whose reckless bets on energy derivatives nearly resulted in bankruptcy two years ago.

Smart meters aren't risk-free. The cost is huge, even though it's spread out over time and geography. Smart meters in California have generated complaints from customers alleging outlandish bills and other problems.

Perhaps the biggest risk is that BGE will buy the computerized meter version of the Sony Betamax or the Segway. It's early to the smart-meter game. Whatever hardware it chooses could be left behind by technology.

But as BGE keeps pointing out, the project's potential benefits are very large. The basic idea is that smart meters will save Central Marylanders billions by letting them cut kilowatt use and avoid expensive, peak energy, allowing decreased demand to lower overall wholesale prices.

In the end, there's no reason BGE shouldn't be reimbursed via the regulatory process that has worked for a century. The company will get into trouble with a future PSC only if smart meters' benefits fall short of the hype. It's only when BGE customers are abused that politicians and regulators go on the warpath.

If BGE meant what it said about how great smart meters are, it'll agree to the PSC's conditions.


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