Baltimore Gas and Electric Co. will deploy its "smart meter" technology intended to save customers money by helping them control energy use, agreeing Monday to terms set by state regulators on how the utility can pass on infrastructure costs to ratepayers.
Under those terms, BGE would shoulder the early costs to install smart meters in homes and businesses and wouldn't be able to seek reimbursement through rate increases until 2014 at the earliest. If the rate hikes are approved starting the following year, BGE estimates that its 1.2 million customers could pay $1.10 a month on average over a 10-year period.
BGE's concession to conditions from the Public Service Commission, the state's top energy regulator, ends uncertainty surrounding the high-tech project that the utility proposed as a consumer-friendly tool but that drew intense questioning from consumer advocates and regulators about whether it would be worth the costs.
"When you put it all together, it's clearly not what we wanted, but there are enough encouraging signs in the [PSC] order for us to move forward in a constructive way," BGE President and CEO Kenneth W. DeFontes Jr. said. "We believe strongly it's the right thing to do for customers."
The utility's decision to proceed also guarantees that BGE would retain $200 million in federal stimulus grants through the U.S. Department of Energy designed to encourage smart-grid projects.
BGE's smart-meter project was initially rejected by state regulators because the utility wanted to charge ratepayers an upfront fee to cover some of the startup and upgrade costs. Opponents complained that consumers were shouldering too much of the risks inherent in such a large-scale project.
Other utilities across the county have installed smart meters, which allow consumers to track electricity usage on an hourly basis, and some have hit roadblocks. Smart meters in California, for instance, have generated complaints from customers alleging outlandish bills and other problems.
But on Friday, Maryland regulators approved BGE's amended proposal with a major condition: The company can only recover its costs through regular rate-increase requests to the commission.
Smart-meter technology would allow two-way communication between customers and the utility. The utility would benefit from immediate information about outages and other system problems on the grid. The technology also would automate meter readings, saving the utility money because it would no longer need meter readers.
BGE officials say customers would save at least $2.5 billion over the 10-year lifespan of the meters. That figure has been revised from the initial 15-year lifespan, per the commission staff's request.
The project is estimated to cost $713 million, with the federal grant decreasing the cost of the initial four-year deployment.
The utility plans to build an information technology and communications infrastructure to support the meters, said Mark Case, BGE's senior vice president for regulatory affairs. Meter installation is scheduled to begin late next year and expected to be completed by September 2014, he said.
BGE officials said Monday they are confident the smart-meter system will deliver on promised savings. They also said they are convinced they will be allowed to recoup costs even though the regulatory environment has been clouded in recent years by contention between public officials and executives at BGE and its parent, Constellation Energy Group.
Quoting from the commission's order, BGE officials said they were assured of their right to recover "prudently incurred costs" and an appropriate return on the utility's investment. They also said the order indicated that the commission's review of rate increase requests "should not subject the company to an unfair, post hoc nickeling-and-diming."
"At the end of the day, it was a gut level decision to say, 'Do we believe in this technology and the objectives … to help customers save money?' The answer is absolutely," DeFontes said.
He added: "In effect we're going to take the commission's order at face value. They say they will treat us fairly."
Gov. Martin O'Malley applauded BGE for its decision to move forward.
"The Public Service Commission appropriately balanced those promised benefits with the known risks inherent in an initiative of this magnitude by delaying recovery of the costs of the project until the benefits are realized," he said in a statement.
After months of deliberation, the commission denied BGE's initial proposal in June. The PSC said in that order that BGE would push too much of the cost on to consumers through upfront surcharges, while savings would be "largely indirect, highly contingent and a long way off."
In response, BGE revised its plan, asking for a surcharge for 25 percent of the expenses during the installation period, with the rest coming from regular rate-increase requests to regulators over time. On a monthly basis, consumers would have paid 28 cents on average.
But the PSC said BGE should recover all of its costs through the normal regulatory process, which means asking for rate increases once the system is in place. Such a process "matches customer costs and benefits more closely" than an upfront surcharge, the PSC wrote.
"If, as BGE claims, its estimates of customer benefits are conservative, BGE should have no trouble demonstrating its right to full recovery in rates once the [smart meter] system is built," the PSC wrote in its order.
DeFontes noted there could be an opportunity for BGE to ask the commission to start recovering its costs earlier if the company can show benefits to consumers. By doing so, it would lower the project's financing charges, estimated to be $100 million, and lower costs that would be passed on to customers, BGE officials said.
Paula Carmody of the state Office of the People's Counsel, which represents consumers on utility matters and had opposed BGE's earlier proposal, said her office is pleased that ratepayers are protected from the project's risks. She said her office and others would have an opportunity to weigh in with testimony in any rate-increase case "before our customers are responsible for the cost of this."
"What this does is eliminate guaranteed recovery of costs," she said. "It means the company cannot recover these costs in advance, and the commission made clear in its order the company must deliver a cost-effective system before cost recovery is allowed."
As part of smart grid, BGE also plans to launch a consumer and communication outreach program. BGE has put aside $66 million to educate ratepayers on the initiative so that they are informed of each phrase of the implementation.
Rob Gould, a BGE spokesman who's spearheading the education campaign, said the utility would build on its experience from its smart-grid pilot program and take lessons learned from other utilities.
"It has to be transparent, long term and sustained," he said.
Smart meters
What: BGE will begin implementing "smart-meter" technology that will help customers track energy usage and save money.
When: Installation of smart meters will begin late next year and is scheduled to end in September 2014.
How much: After the four-year deployment period, BGE estimates consumers on average could pay $1.10 a month over 10 years.