Smart grid skepticism derails Baltimore plan

June 23, 2010

Maryland Public Service Commission highlighted the political resistance smart-metering advocates must overcome when it shot down proposals for compulsory smart metering submitted by Baltimore Gas and Electric Company (BGE).

Smart grids are essential for the Obama administration’s and power industry’s plan to meet rising electricity demand while integrating more renewable generation into the grid.

Creating flexibility on the demand side to match increased intermittency in supply is the only way to maintain reliability without having to build enormous amounts of expensive back-up gas-fired generating capacity and disfigure the landscape by installing thousands of miles of transmission lines.

BGE’s initiative has already been approved by the U.S. Department of Energy to receive $200 million of federal funding under the American Recovery and Reinvestment Act, the centrepiece of the Obama administration’s stimulus package. It is one of the largest grants for electricity infrastructure made under the act. Of the total, $136 million would be spent on rolling out “advanced metering infrastructure” (AMI).


But BGE still needs approval from the state public service commission (PSC) for key elements of the system. The company’s proposals, as submitted to the commission, consist of three major components:

(1) Universal deployment of smart meters throughout BGE’s service territory, replacing or upgrading all existing customer electric and gas meters.

(2) Installing a related two-way communication network between the power utility, the smart meter and the premise.

(3) Implementing a mandatory “Smart Energy Pricing” (SEP) schedule for all residential electric customers. The SEP schedule would vary electricity rates during the peak months from June to September based on the time of day and time of week.

BGE asked for permission to go ahead with compulsory meter deployment and switch customers onto the mandatory smart schedule. It also asked for permission to impose a surcharge on residential customers to recover the costs of deploying the system in advance.

BGE wants to use time-of-use (TOU) rates at certain times of year rather than more radical real-time pricing (RTP) or critical peak pricing (CPP), which would tie bills directly to prices in the wholesale power market or charge customers very high prices for a few hours each year to deter all but essential consumption during those peak periods. TOU tariffs are already used for some residential and many industrial customers across the United States.

Crucially, BGE’s meters would communicate with the utility to enable TOU charging, but they would not necessarily communicate with household appliances or provide in-home displays to automatically reduce consumption during expensive periods, or at least make customers aware they are now on a penalty rate.

For these reasons, BGE’s proposals are only for a “semi-smart” grid. But they are important because this type of semi-smart approach is the one most likely to be adopted by other utilities in the United States and in other countries such as the United Kingdom, where the utilities have been ordered to ensure every home has a smart meter by 2020.

So the public service commission’s decision to reject them on June 21 marks a setback for the industry’s hopes for a metering revolution. It may not be fatal, but it does underscore the enormous scepticism from customers and politicians smart grid advocates will have to overcome if they want widespread rollout.


The PSC was careful not to close the door to all smart metering. “We share BGE’s (and others’) hopes, and even enthusiasm, for the long-run potential and importance of the infrastructure upgrades known colloquially as the smart grid”, the commission wrote. But “we find the business case for this Proposal untenable”. The commission invited BGE to come back with a better one.

The commission’s objections were predictable, and indeed have been foreshadowed in most of the debates about smart metering.

First, the commission and company could not agree on how to share the costs and risks of rolling out smart meters, who should capture any benefits, and how the tariff should be structured.

The commission strongly criticised BGE for trying to recover costs through a surcharge that would appear on customer bills almost immediately, before any infrastructure or benefits are realised, rather than including them in its general rate case and passing them to customers through ordinary per unit electricity charges.

It blasted the company for seeking “to collect a return on the Company’s net investment under the Proposal, as well as to collect Company “incentives” tied to anticipated wholesale capacity revenue, wholesale energy revenue, and wholesale capacity price mitigation resulting from anticipated changes in its customers’ energy use”. It went on: “With the proposed tracker [surcharge] in place, the Proposal is a “no-lose proposition” for the Company”.

The PSC was particularly concerned about where the programme’s benefits would really come from. “Nearly 80 percent of the anticipated benefits of this Proposal arise not from operational savings, such as those expected to be realised from remote meter-reading capabilities, but from supply-side benefits, such as the energy and capacity price mitigation, and monetising in the PJM markets the value of projected energy and capacity reductions”.

Sharing costs and benefits associated with maintaining spare capacity, and avoiding it through smart pricing, between utility investors and customers was always going to be a stumbling block for the smart metering programme.
The other problem is how to ensure customers capture potential benefits from load-shifting (moving use from peak to off-peak periods), and how to protect vulnerable customers who cannot easily shift their time of use.

In its authoritative survey of “Household Response to Dynamic Pricing of Electricity”, the Brattle Group concluded time-of-use tariffs with two bands (peak, off-peak) or three (peak, shoulder, off-peak) cut residential demand at peak times just 3-6 percent. More stringent strategies such as critical peak pricing cut peak demand by 13-20 percent.

But the biggest reductions came from CPP tariffs coupled with “enabling technologies” such as cycling switches on airconditioning units, which cut peak use by as much as 27-44 percent. The problem is that this requires much smarter meters capable of three-way communication between the utility, the meter and key household appliances.

At the very least, for even TOU and CPP systems to affect customer behaviour, customers need to be able to see how their bills are adding up in real time, and displays need to be prominent and visible.

The PSC criticised BGE’s proposal because it “contains no concrete, detailed customer education plans, includes no orbs or other in-home displays, and provides grossly inadequate messaging, in our view, to trigger the behaviour changes” it contemplates.

The commission also expressed predictable concerns that the TOU did not adequately protect the company’s “most vulnerable customers, such as low-income households, elderly customers, customers with medical needs for electricity that cannot be shifted to off-peak hours, or other customers who are stay-at-home”.

All this was foreseeable. The questions of how to make load shifting as easy as possible for customers, and protect households who cannot easily change time of use, were identified early on as crucial issues if smart metering was to win widespread acceptance.

BGE’s failure to develop a system that could win PSC approval suggests the industry still needs to do more work if it is to get official backing for a compulsory roll out. The metering revolution is still coming, but not in Baltimore just yet.


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