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A proposal to modernize the electricity grid by coupling "smart" meters with a new pricing system for the hottest summer afternoons will lower operational costs, create incentives to reduce demand and benefit the environment, a Baltimore Gas and Electric Co. executive told state regulators Tuesday.

"This is an exciting juncture for BGE customers," said Mark D. Case, BGE's senior vice president for regulatory affairs, as he described the company's "smart grid" proposal before the Maryland Public Service Commission.

The U.S. Department of Energy awarded BGE $200 million in federal stimulus dollars in October to support replacing 2 million meters by 2014. The grants reduce the amount the company seeks to recoup through monthly bill surcharges over 18 years. The PSC must approve the fees.

"It takes what was already a strong business case and makes it stronger," said Case, referring to the federal grant.

The fees would start at a few cents per month, peak at more than $2 monthly in 2012 and then decline. Hearings will continue this week, and commissioners are expected to issue a decision by the end of the year.

BGE officials say the advanced metering technology would give ratepayers detailed, real-time information about energy consumption and let the company automate meter reading, outage detection, and disconnections and reconnections of service, creating savings that could be passed on to customers.

But advocates for consumers and older adults raised doubts about whether the program - expected to cost $800 million over the life of the meters - was the most cost-effective way to achieve these goals.

"We view it as too much, too fast," said Paula Carmody of the Office of the People's Counsel, which represents consumers.

Smart-grid proposals have been pushed by utilities, technology companies and environmentalists concerned over climate change. But there may be other more-effective, less-expensive solutions, such as BGE's voluntary PeakRewards program, she said.

"We have challenged and continue to challenge the need to move forward with this type of technology on this type of fast-track timetable," she said.

Officials say ratepayers could save up to $2.6 billion by earning credits for reducing consumption from 2 p.m. to 7 p.m. on "critical peak days" - the hottest summer days, when electricity costs are highest due to greater demand. It costs BGE more to purchase electricity during peak periods, so when consumers cut back, the savings would be passed along to them, Case said.

The company proposal includes mandatory "time-of-use" pricing schemes, but Case said it would be up to commissioners whether to implement them. If approved, consumers would pay about 16.6 cents per kilowatt-hour from 2 p.m. to 7 p.m. on summer afternoons and about 10 cents at other times. Most residential consumers now pay about 12 cents per kilowatt-hour. (These prices do not include BGE's delivery charge.)

"This is a more accurate form of pricing," he said, reflecting the varying rates that BGE pays for power at different times of the day. But consumers would reap benefits even without it, Case said.

Carmody said the variable rates could adversely affect older adults, families with young children and others home during the day. She also raised concerns about cybersecurity, privacy issues about BGE gathering this much data about its customers, and the possibility that the meters and other equipment might soon be obsolete because the technology is so new.

"I just view this as one more experiment on our residential customers," she said, much like the deregulation a decade ago that preceded huge increases in residential electricity bills.

Maryland Public Service Commission staff members stated in their reports on the proposal that the $200 million in federal grants eliminate the need to levy a surcharge on customers' bills in the early years.

Case said BGE opposes the PSC's position, saying the utility needs to recover its costs in order to move forward on the smart grid project and that asking shareholders to pick up the tab would be inequitable.

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