July 14, 2009

Time-of-use pricing adds

to $2.6 billion savings

If the Maryland PSC approves a smart grid initiative surcharge proposal by Baltimore Gas & Electric, Baltimore will be on track to start deploying 2 million smart electric and gas meters late this year to finish in early 2014, Mark Case, BGE senior vice president for strategy and regulatory affairs told us yesterday.  That's the IOU's entire footprint.

          That's big news for the US smart grid industry, though not as big as “Energy Smart Miami,” announced in April by partners Florida Power & Light, General Electric, Cisco and Silver Spring Networks (SGT, Apr-21) -- to see 4.5 million FPL customers networked by 2013.

          So who will win BG&E's smart grid business?

          Accenture is the only firm announced yet.  The leading business consultancy began working on the plan last year, said BG&E.  The utility plans to decide within two months on the vendors for the communications network, AMI system and HAN systems, Case reported.

          The firm may settle on some providers of in-home energy-consumption display devices, too, he added.  BG&E last year worked with Energy Orb and is evaluating devices made by Aztec, Comverge and Tendril, he added.

          Baltimore-based BG&E last year conducted two four-month pilot projects: one with 5,000 advanced meters and another with 1,300 residential customers to test dynamic pricing structures.  The latter project, Case said, measured consumer's ability to cut demand in response to price signals and economic incentives.

          The utility plans in 2012-2013 to phase-in what its calling a Smart Energy Pricing (SEP) program under its standard electricity rate schedule.  Hourly consumption data would be used to calculate each customer's baseline use and then to pay a $1.25/kwh rebate for the cumulative number of hours that the customer cuts demand between 2-7 pm on days BG&E declares as “peak days” each summer.

          In the pilot, BGE saw lots of customers cut power use to 30 kwh from 40 kwh on a “peak day,” said Case, and under the utility's proposed system, they would earn $12.50 for that day.  Last summer, BGE declared a dozen such days.  Case called that a normal number.

          BGE recently rolled out a “second season” pilot, again for four months, to make sure results are sustainable.  This one includes commercial customers.  About 1/3 of the 1,500 participants are commercial power consumers.

          This year, the pilot for residential customers includes smart thermostats and BG&E is testing a load-control system with commercial customers.  The pilots run from June through September.

          Smart home appliances and a charging device for electric vehicles are envisioned in BG&E's plan, too.  They might be operated through an internet portal system such as Google PowerMeter, Case predicted, but BGE is thus far working neither with Google nor competitor Microsoft, he noted.

          While it is clear the foundation still needs to be laid for a smart grid implementation plan in Baltimore, “we're far enough into the bid process and in discussions with vendors, that we've been able to cost out the project,” said Case.  Partly because last year's pilot showed consumers can cut peak power use by about 1/3, BG&E calculated that 2 million meters over 15 years could save electric and gas customers over $2.6 billion, he added.

          In last year's pilot of advanced metering technology and smart energy pricing, participating residential customers cut power use during peak periods by 26-37%. 

            BG&E to sell DR

          In BG&E's smart grid project business case, Case said, it arrives at the $2.6 billion figure by including not only the operational savings that come from business-process automation and capital savings that come from avoiding the need for new power plants but also reduced peak demand that BGE plans to bid into the PJM capacity auction.

          It took the utility more than two years to collect the data it needed to put together the business case it recently filed with Maryland's commissioners.

          The utility, a unit of Constellation Energy, is filing two applications for DOE matching grants: BG&E plans to ask for $200 million from the Smart Grid Investment Grant Program (SGIG), applying all of what it gets to cut the estimated initial deployment and operating costs of nearly $500 million over five years.  It also is set to partner with Johns Hopkins and Florida State to apply for a demonstration project grant.  Part of that would be used to help finance a solar farm in southern Maryland, Case said, noting that the cost of the two- to three-year project hasn't yet been scoped out.

          The timing of BGE's announcement less than a month before the first DOE matching-grant application deadline (SGT, Jun-26) is not a surprise, Morningstar Senior Equity Analyst Travis Miller told us yesterday.  The grants are driving a lot of decisions inside utilities.

          Morningstar generally sees “any smart grid or next-generation investment as a positive for most utility investors” in part since such projects offer ways to grow earnings while the risks are “relatively low,” said Miller.

          “It's encouraging to see BG&E take this step,” Miller said.  “They reach a fairly large number of customers,” and are watched by the industry.

          FPL CEO Lew Hay has said his IOU is in “a good position” to get stimulus funds, in part since FPL is the nation's largest wind-farm producer and GE is the largest wind-farm gear-maker -- and FPL will be able to display its commercial-scale solar energy projects.

            It's not easy being green

          Other than that demo project, BGE's experience with renewables is limited to installing some solar panels at its own facilities, said Case.

          Since Maryland is fairly densely populated and does not appear on any map of solar intensity, the state is “not particularly favorable for the two dominant sources of renewable energy: solar and on-shore wind,” Miller noted.  Thus, while buzz about the smart grid has in the last few months become almost synonymous with green and clean energy, BG&E's smart grid initiative serves as a reminder that “there are benefits to installing smart meters that go beyond meeting a large amount of renewable energy on your system.”

            If DOE balks, ratepayers pay

          Assuming that BGE does not get an SGIG grant, under the cost-recovery mechanism BG&E has proposed, the monthly customer surcharge would be 38¢ for electric-only customers and 44¢ for gas-only customers in the first year of implementation.  The customer cost would rise over time along with the benefits.

          Over the smart grid program's 15 years, the monthly surcharge would average about $1.24 and $1.52, respectively, for residential electric and gas customers, BGE said.

          Both grant applications are due in August.  BGE expects DOE to start announcing awards in October.

          Regardless, the utility would apply what it saves in operations changed via the smart grid project -- the elimination of people carrying out meter readings is “an easy example” -- to “directly reducing the surcharge” to existing rates, Case said.

          Creating a smart grid in Baltimore will, of course, bring reliability benefits.  Concerns have been expressed about reliability in the PJM in the next three or four years, Case noted.  When BGE combines its smart grid plans with energy efficiency initiatives, it believes it will be able to cut peak demand by over 20% by 2015.

          “We think it's a landmark initiative that will have transformational benefits in how we serve customers for years to come,” Case said.

          In one respect, the state forced smart grid action at BG&E, Maryland's largest gas and electric utility.  Maryland last year passed a law calling for a statewide drop of 15% in per capita power use and peak demand by 2015.

          “To achieve that ambitious of a goal … you have to pursue initiatives like smart grid,” Case acknowledged.  “But even if the law were not out there, there are still many compelling reasons to go forward with smart grid,” including, in BG&E's case, customers who are very concerned about reliability, conservation and accommodating renewable energy sources, he said.

          BG&E no doubt will be focused next on getting regulators in Maryland to go for the surcharge, Miller said.  That could take some time, he noted, adding: “I'm not expecting the meters to go in tomorrow.”