Saturday, August 14, 2010

Post # 36 - BGE Across the Finish Line? (UPDATE)

UPDATE, 8/16/2010: Having taken the weekend to think it over, BGE this morning announced it will accept the conditions imposed by the Maryland PSC's 8/13/2010 decision and move forward with its smart meter installation -- without upfront authorization to pass through the costs to ratepayers. In its announcement this morning, BGE noted that the MPSC found that the project itself was in the public interest and that the PSC assured the company that it could expect to recover "prudently incurred [project-related] costs." The company also asserts that, at the end of the day, the project will allow for at least $2.5 billion in savings for its 1.2 million customers.

The combination of the MPSC's conditional approval on Friday and BGE's acceptance today of the conditions also means that BGE has secured the $200 million grant for the project approved by the U.S. Department of Energy. BGE will now move forward and, following periodic reviews, seek incremental cost recovery from the PSC.

So, after some major stumbling blocks this summer, BGE's smart meter roll out begins. And so does continued MPSC review and oversight.
8/14/2010 POST: Following up on my August 12th post, late yesterday (Friday, August 13th), the Maryland Public Service Commission issued an order conditionally approving Baltimore Gas & Electric's smart meter roll out. Assuming BGE accepts the MPSC's conditions, this will allow BGE to retain its $200 million grant for the project for the U.S. Department of Energy. As I noted in the prior post, DOE reportedly had set a August 16th deadline for BGE to receive necessary PSC approval.

But BGE's acceptance of the conditions is not necessarily a done deal, because the new order still appears to fall short of BGE's hopes.

Last June, of course, the MPSC rejected a BGE plan that would have recovered all costs in excess of the $200 million (an estimated additional $635 million) though a consumer surcharge. BGE also sought to impose mandatory "time-of-use" or "dynamic" pricing schedule during the summer months, based on time-of-day and time-of-week usage. As related in Post # 25, the MPSC rejected the proposal, holding that BGE had not established sufficient rate payer benefits to justify mandatory cost recovery.

In July, BGE returned to the MPSC with a modified proposal, under which the company would recover only 25 percent of the project costs through the surcharge. For the remaining 75 percent, BGE would seek cost recovery through traditional rate recovery mechanisms over the life of the project. In other words, BGE would have to ask for cost recovery on a periodic basis, with the PSC saying "yea" or "nae" after reviewing each application. In addition, under the proposal, BGE would no longer make time-of-use rates mandatory -- customers instead would choose whether to go the dynamic pricing route. See Post # 29.

However, in the August 13th order, the MPSC ruled that BGE may recover costs only though regular rate increases and apparently only after the company has completed its smart meter network. In other words, no surcharges. If BGE moves forward, it apparently will have to do so without any guarantee of cost recovery. At the same time, the MPSC seemed favorably impressed with the technical aspects of BGE's proposal. The order concludes by saying that "[i]f the project goes as BGE predicts, or anything like it, BGE should have no trouble proving in its future distribution rate cases that it has delivered the benefits to consumers that make the project cost effective. . . .'

We should know shortly whether BGE is prepared to move forward on that basis.

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