Baltimore Gas & Electric had to try twice to get its smart grid plan approved, despite having $200 million in stimulus funds from the U.S. Department of Energy already in its back pocket. While BGE took pains to point out the benefits for itself and its customers, the Maryland Public Service Commission was convinced that the consumer was bearing too much of the risk in the initial proposal.

While critics who argue that smart grid projects are too expensive in these hard times may point to Baltimore as a case in point, BGE is not alone. Consumers Energy in Michigan recently slashed its smart grid budget from $900 million to $500 million, and the Indiana Utility Regulatory Commission rejected Duke Energy's initial $450 million smart grid proposal, saying there weren't enough demonstrable benefits for customers. Meanwhile, other utilities across the globe are rushing to install smart meters that can help them better manage outages and billing, while customers can potentially access information to help keep them informed of, and reduce, their energy use.

For all of the talk about savings, smart grid projects still require a lot of money upfront. Estimates suggest that a full smart grid investment could cost anywhere from $150 billion to more than a trillion dollars in the next 15 to 20 years. Making the case for smart meters, and other smart grid infrastructure, is a winding road, with different utilities relying on different pricing structures and legislative backing or prodding to make their business case to take their piece of the grid into the 21st century. No matter which argument is put forth, it is becoming increasingly clear that it must point directly back to tangible benefits for customers.

The basic cost of each smart meter device in the U.S. hovers around $250 per unit, which includes the communications and hardware, according to an upcoming report from GTM Research, U.S. Smart Grid Market Forecast 2010-2015. Removing remote connection capabilities, which allows providers to switch meters on and off remotely, can drastically cut the price of each unit, but for many utilities, this capability is worth the upfront investment.

Oncor has already installed more than one million smart meters, at a cost of $201.88 per meter (this price includes remote connection, which was mandated by the state legislature). The Texas utility recognized that savings would come from a reduced number of truck rolls, but customers had to see the savings, too. "At the end of the line," said Chris Schein, spokesperson for Oncor, "it's where this fits in for the customer."

Regulators in Texas allowed Oncor to introduce a special surcharge of $2.19 per customer every month for 11 years to pay for the meters and public education campaign, instead of bringing them in as capital improvements and recouping the money through a traditional rate increase. The legislation made it mandatory for AMI to have certain features, including remote connection, and other utilities, including CenterPoint and TNMP, have followed suit with surcharges for deployment. Although Texas has nearly two million meters installed, "It has not been a straight line," according to Berry Smitherman, chairman of the Texas PUC.

For customers looking to recoup money from surcharges, Schein noted that most customers who use the Smart Meter Texas portal save about 10 percent of their electricity bill, which averages $200 per month in Texas. "Once we began working on this and we began seeing the total cost, we went out and said, OK, customers need to be able to see the benefits," he said.

Talking in customers' terms was also essential to Pepco's plan to roll out meters to its Washington, D.C. area ratepayers. Instead of a special surcharge, however, Pepco will pay for the meters as a traditional capital improvement, according to Betty Ann Kane, chairman of the District of Columbia Public Service Commission. The meters cost slightly more than $300 per unit, which includes both remote connection and a home energy management portal. Other utilities, including Duke Energy, APS and Delmarva, have also gone the route of traditional rate case recovery.

The proposal by Pepco, which will install 13,000 of approximately 280,000 meters by the end of October, did not point to the savings to its O&M budget or cutbacks on meter readings. Instead, demand response was where the cost benefit was highlighted, followed closely by customer savings. The utility also did a thorough pilot that included different pricing plans for consumers and offered a home energy management portal, which has been called an example of best practices by George Arnold, national coordinator for Smart Grid Interoperability for the National Institute of Standards & Technology. A little DOE money (nearly $50 million just for this project) didn't hurt either. "If they had not gotten any federal funds, there would have been no authorization," said Kane.

Having a web portal or other energy tracking system for customers (Pepco's PowerCents DC also used snail mail and even refrigerator magnets) is now seen as essential for successful smart meter deployments. Many utilities, even Oncor, did not launch the portals as the meters were installed, but instead got it up and running months or even a year later. Although providing that sort of data and engagement adds another cost to the project, it's a cost that must be included from day one.

"We need to let the customer know that they can interact with their utility," said Alan Schriber, chairman of the Public Utilities Commission of Ohio, during Smart Grid Today's "Cost Recovery and the Smart Grid" webinar on Friday.

In BGE's second proposal, they moved up the time frame for getting customer resources online, and made their education plan more robust. As customers are strapped for cash in a weak economy, utilities must be careful to avoid the stigma of getting fat off of ratepayers hard-earned dollars.

Although the prioritization of advanced metering benefits vary from utility to utility, it is much harder to make the case for other smart grid improvements. Distribution automation is widely known to be critical to bringing renewables on the grid and improving efficiency, but consumers don't want to hear about smart substations and routers, even if they save everyone money and increase reliability in the long run.

Despite the need for upgrades in transmission and distribution, along with forecasts that show the investment for DA improvements outpacing investment in metering in coming years, the business case remains elusive for many utilities to improve latencies.  "When it comes to DA, no one has the vision," Witold Bik, vice president of S&C's Automation Systems Division, said at The Networked Grid in May. Utilities are slow to move, but once a few have made successful business cases that PUCs have approved, others are sure to follow. The other issue is cost. A full U.S. deployment of smart reclosers alone could cost $20 billion to $30 billion.

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"If you go back upstream in the value chain to DA and substation automation to talk about how those flow to the end customer --  it's a very difficult task," said Rob Wilhite, Senior Vice President of KEMA Inc., when asked about cost recovery beyond AMI during Smart Grid Today's webinar on Friday.

Difficult, but not impossible. The boom in synchrophasors is due in part to legislation that requires technology that will prevent a blackout like the one in 2003 from happening again. Legislators could also tether bills that call for renewable targets to include language that calls for the grid to be upgraded to handle the extra, intermittent capacity.

Many PUCs are already looking beyond AMI when proposals are put forth. The Hawaiian Electric Company's smart meter proposal was rejected because its PUC didn't think it had a strong enough road map for metering and beyond.  "When you look at the biz case for AMI or full-blown smart grid, most [utilities] are going to have a difficult time showing the benefit by savings in operational cost alone," said Wilhite. "It has to include customer or societal benefits."

 

Tags: bge, cost recovery, oncor, pepco, smart grid