Smart metering took a one-two punch this week, one blow on each side of the country.
First, Baltimore Gas and Electric (BGE) was told by the Maryland Public Service Commission (PSC) that its application to deploy smart meters to its 1.2 million customers was being denied. “In this Order,” PSC commissioners wrote, “we deny Baltimore Gas and Electric Company’s Application for Authorization to Deploy a Smart Grid Initiative and to Establish a Surcharge Mechanism for the Recovery of Costs (the ‘Proposal’). Although we share BGE’s (and others’) hopes, and even enthusiasm, for the long-run potential and importance of the infrastructure upgrades known colloquially as the ‘smart grid,’ we find the business case for this Proposal untenable.
“The Proposal asks BGE’s ratepayers 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 not in its current form. But we invite BGE to revisit its Proposal in light of this Order and to submit an alternative that addresses the issues we discuss below.”
The proposal was initially filed with the PSC on July 13, 2009. In October 2009, the U.S. Department of Energy awarded BGE a $200 million Smart Grid Investment Grant for the nearly $452 million project. BGE had planned to deploy a smart meter network and advanced customer control system that would enable dynamic electricity pricing for its entire customer base. It also planned to expand the utility’s direct load control program to enhance grid reliability and improve congestion.
BGE officials were clearly flummoxed by the decision. A statement issued by the utility on June 21 said: "BGE is deeply disappointed, frustrated, and frankly surprised by the Maryland Public Service Commission's (PSC) decision to deny our application to deploy advanced energy meters to each of our 1.2 million customers and save them $2.6 billion."
The company noted the Obama Administration's wholehearted endorsement of BGE's initiative (as evidenced by the $200 million smart grid grant it awarded the utility), and added, "We're shocked that the PSC is jeopardizing the $200 million stimulus grant awarded by the Department of Energy to help pay for the initiative. The decision also jeopardizes Maryland's ability to meet the O'Malley Administration's energy efficiency goals under EmPOWER Maryland."
Whether BGE feels it can revamp its proposal for resubmission to the PSC is still unknown. The fate of the $200 million DOE grant it received is also unknown, though Matt Rogers, senior advisor to the U.S. secretary of energy for Recovery Act implementation, has said in a statement issued earlier this week that DOE officials plan to work with BGE to move forward.
Closely on the heels of the Maryland PSC’s decision, news came that San Francisco City Attorney Dennis Herrera late last week filed a formal petition with the California Public Utilities Commission asking it to stop Pacific Gas & Electric Co. from continuing to install its smart meters pending completion of an official inquiry into the meters’ accuracy. (The PUC’s inquiry is expected to be completed later this summer.)
This is but the latest salvo in the pushback PG&E is experiencing this year, about two-thirds of the way through its installation of gas and electric smart meters across its California territory, which it began in 2006.
Clearly, the consumer education piece of the smart grid equation needs revisiting.
I look forward to your comments here, or via e-mail at krowland@energycentral.com. Follow me on Twitter: www.twitter.com/katerowland2
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Maryland PSC's great leadership decision on BG&E's Smart Metering Project has answered the question posed in the EWPC article "Is the Smart Grid that is Being Pushed a Costly Mistake?" That decision fulfills Peter Koestenbaum's leadership strategies on how to achieve greatness: it has extraordinary value on ethics, vision, reality, and courage.
The summary of said article suggests the leadership step waiting to happen: "The main argument is that, by inaction, each State Government should be responsible to their constituencies for a very costly mistake that is being made by letting the smart grid process continue without giving State Regulators the proper mandate."
On top of that, State Governments need to look very closely at the discussions posted in "The Dynamic Pricing Debate Shows that Utilities Won't be Able [to] Engage Customers."
This is taken from the EWPC Post "Every State Government Should Follow Maryland PSC's Leadership," which can be read in the hyperlink http://bit.ly/EWPC07
The Maryland PSC wants Baltimore Gas & Electric to share the risks and rewards of implementing a smart meter infrastructure, rather than having customers shoulder all the risks and pay for all the smart meters (starting two years before the meters start to be installed). BGE says only customers should pay because they get "100% of the benefit), but that ignores how BGE will use the information they get from smart meters to better control electrical distribution, and avoid having to start up additional costly generation to meet peak power needs.
San Francisco's move is also logical, in light of smart meter installations in Southern California and elsewhere in which smart meters have malfunctioned and over-billed customers.
Both actions were strickly in the public interest. Maryland's PSC has invited BGE to resubmit its proposal, presumably in a way that puts the utility and its customers more in partnership in developing the smart grid. San Francisco is trying to protect its citizens from inaccurate billing from a swarm of new-fangled devices. Both instances should be looked at as speed bumps, rather than hurdles, to the development of a truly smart power grid, which will be more reliable than before, better able to handle the ups and downs of electrical demand, and better able to resist, and recover from system failures.
While I haven't had the chance to give it a detailed read yet, it is designed to provide PG&E, San Diego Gas & Electric, and Southern California Edison "with the guidance needed to file Smart Grid Deployment Plans" with the PUC by July 1, 2011.
I'd be interested in readers' thoughts once they've had a chance to digest the information.
With much respect to both of you, I suggest that there is a big difference between two situations that can be classified as strategic and tactic situations for the power industry. The smart metering strategic blow is the outstanding Maryland PSC's leadership decision which may evolve into a real hurdle for some utilities investors to preserve the public interest; without the impact of the strategic blow, the tactic blow on PG&E is just a mare administrative speed bump, which may not be a real source of a setback for investors.
To continue reading my response, please go the EWPC article "Forget the Customer Engagement Debate; Think Risk Taking Suppliers," at http://bit.ly/EWPC08
I take exception to your characterization of my comments as "minimizing the situation as business as usual," while your introductory paragraph basically reiterates my stated point of view.
Your linked article is certainly dense with references, to your articles and the writing of others. Perhaps that's why I find it difficult to comprehend. What I'm getting from it is that you do not want to see the utility industry engaging with consumers, to educate them and get them on board with smart grid activities and upgrades; it appears you'd prefer "to avoid an unnecessary debate."
Instead, you write, "we need a new bargain in the power industry to facilitate a customer partnership with one of several suppliers having an emerging direct competitive risk taking business model." Perhaps you could explain what form that partnership might take, and with whom, since that's not made clear in your article.
Also, your article appears (to me) to say that, rather than educating consumers and their PUC representatives, you've written (I think in a LinkedIn discussion) that "to enable the development of risk taking business model innovations, what is needed is an architecture competition."
The implication I'm taking away from this is that you don't think utilities in their current form are capable of accepting any risk in their business models, even to the extent of sharing costs with consumers for technology upgrades they in which they purportedly have great confidence.
Now I see why you belittled my comments as an implication of "business as usual." You apparently believe utilities will have to reform themselves from the ground up if regulators insist they share the burdens of smart grid upgrades with consumers. I hope this is not what has to happen every time a regulator declines to approve a rate increase, or anything else a utility requests. After all, the utility knows best, right?
Hi Kate and Larry
The severity of the Maryland situation is only the trigger of the smart grid that is being pushed potential debacle. The Maryland PSC has shown very clearly to the public that state regulatory commissions are just unable by the limits imposed by the regulation itself to handle such risky high tech projects. As the customer engagements step was bypassed, when developing the initial requirements, the insight of John Kotter applies entirely to the smart grid that is being pushed to customers: "Skipping steps creates only the illusion of speed and never produces satisfactory results" and "making critical mistakes in any of the phases can have a devastating impact, slowing momentum and negating hard-won gains."
The opportunity to avoid an unnecessary debate on customer engagement can now be seen in hindsight as an engagement based on an afterthought. Now we know that had the customer engagement issue been consider at the outset, an architecture competition based on the well proven Silicon Valley Model, between retailers had been chosen. In the new bargain, instead of risk free utilities monopolies developing regulated AMIs projects, it is risk taking competitive retailers suppliers that developed them.
The opportunity to avoid such a debate became visible during a discussion that enabled the insight that its aim is to extend an ineffective and obsolete business model of utilities winning rate cases to a regulator. Instead of trying to predict the unpredictable, the real alternative is for customers to be free to engage with the supplier of their choice and at the time of their choice to select an integrated offering that best meets their needs.
The trigger has now shown to the general public the uncertainties and risks on the smart grid that is being pushed. The problem with the situation is that the PSC has understood that it is not a business as usual rate case. However, as the Order says public service commissions have a duty to treat it as a " classic utility infrastructure investment that should be recovered through distribution rates, not in a supplemental surcharge that begins long before customers could realize any benefits from the project."
As all state governments and state regulators are now well aware of it is going to be very difficult to get the smart grid that is being pushed genie back into the bottle, as it happened in the California debacle. Instead of forcing Public Service Commissions to take huge risks against the public interest, the solution is for state governments to lead the introduction of market processes under prudential regulations.
Supporting the need to shift market processes, in the Knowledge Problem's article, "What the Maryland PSC's rejection of BG&E's smart grid proposal reveals about regulation ( http://bit.ly/KP0001 )," Lynne Kiesling wrote on June 28th 2010 that "... traditional economic regulation is incompatible with economic dynamism, with technological change, with innovation, and ultimately incompatible with widespread consumer well-being because of the enormous extent to which traditional economic regulation stifles experimentation. The really valuable function that market processes provide is this ability for consumers and producers to experiment. Traditional economic regulation is almost reflexively anti-experimentation, and that reflex is the source of lost value creation opportunities from smart grid technologies."
I disagree on Larry taking exception and with the one about the introductions. It is a fact that the parts of an entry interact in ways that determine the meaning of the whole. Mechanically separating one paragraph away of the whole posts (and also the whole discussion) affects in both cases the meaning of two very different whole posts. Larry tries to sell the idea that two situations are similar, while I am showing they are very different: one is fine as business as usual and the other is a potential setback clearly minimized after you read the smart grid's sales message at the end of the post.
This is another example that I am not alone in seeing the potential setback. This is how a New York Times article "Md.'s Veto of Advanced Meter Deployment Stuns Smart Grid Advocates" saw the potential setback: "A utility proposal to install smart meters throughout Maryland has been rejected by the state's Public Service Commission, jeopardizing if not ending what had been one of the Obama administration's leading investment commitments to smart grid technologies and consumer energy conservation." To me "... jeopardizing if not ending..." doesn't qualify as a business as usual speed bump to minimize the critical situation of highly potential setback for "The Smart Grid That is Being Pushed."
Here are two additional examples from the same source. To see more that it is not a business as usual speed bump, the New York Time story quotes "Mark Case, BG&E's senior vice president for strategy and regulatory affairs, saying that 'We actually do not see any clear path to move forward.'" The story adds federal scope to the potential setback, by saying that "The National Association of Regulatory Utility Commissioners, through a spokesman, backed the Maryland commission's action."
You continue to interpret the source materials in fascinating ways. To you, "The Maryland PSC has shown very clearly to the public that state regulatory commissions are just unable by the limits imposed by the regulation itself to handle such risky high tech projects." To me, NARUC and others, the PSC did its job in representing the best interests of consumers in its service area, handling the issues before it correctly.
You also take exception with MY taking exception with your mis-characterization of my opinion. That's very polite, but doesn't change the fact that you've mis-interpreted what I wrote, that the PSC decision is not necessarily a setback to smart grids. It may be a setback to BGE, but the utility has been invited to re-submit its proposal in a way that shares risk between the utility and its consumers. That doesn't mean this action is a setback to the development of smart grids generally, just that other utilities looking to begin or expand smart grid implementations must take this into account.
You appear to be making the case that the failure of the Maryland PSC to approve BGE's proposal invalidates the purpose and usefulness of public utilities commissions in general. You offer the false forced choice: "Instead of forcing Public Service Commissions to take huge risks against the public interest, the solution is for state governments to lead the introduction of market processes under prudential regulations." How about the third option, of obeying a PSC that acts in the Public Service Commission that has acted in the public interest, and having BGE as a result re-evaluate and resubmit its proposal, as the PSC has invited it to?
Your article, "Is the Smart Grid that is Being Pushed a Costly Mistake?" concludes that it is indeed a mistake, and cites other articles you've authored in promotion of the Electricity Without Price Controls Architecture Framework, which you envision replacing the current utility and regulatory structure entirely. That's just not going to happen overnight, and you shouldn't characterize the prudent concerns of regulators acting in the public interest under the current structure as valueless, just because they're not steps toward that Framework that you've devised.
You can find my response in the EWPC post "The Potential Setback of the Smart Grid that is Being Pushed" in the link http://bit.ly/EWPC09
Good night,
JoséAntonio
This is not because customers are unable to ___, but because of how much else is competing for "bandwidth" in modern, busy lives.
Both PG&E and BG&E proposals miss this.