“Although we share BG&E’s (and others) hopes and even enthusiasm for the long run potential for the infrastructure upgrades known colloquially as “smart grid”, we find the business case for this proposal untenable.  The proposal asks BG&E customers to take significant financial and technological risks, and adapt to categorical changes in rate design, all in exchange for savings that are largely indirect, highly contingent and a long way off.  We are not persuaded that this bargain is cost effective or serves the public interest, at least in its current form. But we invite BG&E to revisit its proposal in light of this order and submit an alternative that addresses the issues discussed.”[1]

With those words, state utility regulators in Maryland shot down Baltimore Gas & Electric’s smart grid proposal and put at risk the $136 million in smart grid stimulus grant money from US DOE.  Maryland has thus gone farther than any state, so far, in framing a fundamental problem to realizing the promise of smart grid.  The problem is customers don’t see the benefit, don’t want the hassles and are not yet prepared to accept the need for dynamic pricing.

Everyone hastens to say they are not opposed to smart grid—just the things we must do and how much we must pay to make it work. But realizing that smart grid promises of enabling energy efficiency, a digital electric grid infrastructure that optimizes grid performance through automation, lower costs of operations from meter reading, expanded data insight on energy use, and expanding access to clean, renewable energy supplies all require substantial investment in infrastructure beyond just buying and installing smart meters themselves.  But Federal stimulus grants have largely been focused on deploying smart meters and thus utilities, like BG&E, are going after that money and deploying smart meters.

Wait a Minute!  This is not change ratepayers believe in.

Ratepayer advocates in Maryland and elsewhere have been raising their voices saying “wait a minute” this is going to cost more—a lot more, and take longer—a lot longer to get all these benefits but the costs are going to hit ratepayers now.  And, no, they are not talking about ObamaCare.

The Maryland PSC accepted ratepayer concerns and demanded that shareholders at BG&E bear some of the cost and risk of the transition at least until the benefits to consumers begin to appear.  The theory is if all the costs of smart grid are passed through to customers now but the benefits are delayed until later they may never appear or the utility will have little incentive to realize them since it has no “skin in the game” save for the threat of a prudence review.

The prudence review tool is a powerful motivator for utilities as Xcel Energy realized after the costs for its implementation of Smart Grid City in Boulder Colorado went way up.  The Colorado Commission ordered a review of whether Xcel had prudently estimated the cost and worked to control them.[2]

In California, the Division of Ratepayer Advocacy is on record across a wide range of policy objectives from energy efficiency, demand response, renewable portfolio standards and smart grid telling the California PUC that ratepayers alone should not have to bear the policy aspirations of the Legislature for all these changes. [3]

So what?

  • Realizing the promise of smart grid is a wonderful goal but it is being driven by government fiat rather than the market place so it feels like a ‘cramdown’ to customers. Pushing too hard, too fast risks the loss of customer support for a wide range of important policy goals. Smart meters are the visible symbol of change customers see on the side of their house and feel in the utility bill so they get the blame.  But the Federal Government’s stimulus program is backfiring by forcing spending and changes before customers understand them or accept them thus risking popular support for a broad set of energy and environmental goals.
  • Customers fear the cost of living into the “green ambitions” of politicians and are pushing back. The cumulative rising rate implications of renewable energy, emissions reduction and smart grid is hitting customers in a rotten economy when they can least afford it.  Smart meters are getting the blame because they are the visible symbol for customers, but the entire clean energy agenda is being put at risk of customer and voter backlash. This week, California qualified a November 2010 ballot proposition to suspend its AB32 Global Warming Solutions Act until unemployment in the Golden State is 5.5% or less for four quarters.  Customer anger over rising utility rates is turning into voter revenge.
  • Politicians and regulators are running for cover as push-back grows. The result is orders like Maryland that say regulators support the goal but expected the cost to hit the fan in the future along with the benefits and now don’t want to be accountable for the consequences of their policy choices.  Thus getting to the smart grid and clean energy goals requires changes that those same policy makers are not yet ready to make. Spending all this money on smart meters is insufficient unless millions more are spent to make them work as planned.
  • Customers are realizing that the promised benefits are far in the future and depend upon actions their utility, their state PUC and even the Federal Government is unable or unwilling to take. For example, depending upon wind and solar projects to meet future energy needs is risky if the Federal and State Governments keep saying NO to the electric transmission necessary to get the renewables to market.
  • But the costs are real and must be paid NOW. Smart Grid stimulus grants have induced utilities to go after millions to deploy smart meters, but to get the millions they must spend hundreds of millions more to build the rest of the infrastructure needed to complete the puzzle.  Then they must persuade regulators to abandon average cost ratemaking principles in use for generations in favor of dynamic pricing in the form of peak day pricing, time of use rates or tiered rates that subject customers to price volatility so they will have the incentive to reduce demand, be more energy efficient to use less.

[1] http://webapp.psc.state.md.us/Intranet/sitesearch/whats_new/Order%2083410_BGE%20AMI%20Application_CN%209208.pdf

[2] http://www.dora.state.co.us/puc/DocketsDecisions/decisions/2009/C09-1446_09AL-299E.pdf

[3] http://www.dra.ca.gov/dra/

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