Strict adherence to cost-of-service ratemaking led to what might be considered a Luddite decision in the Maryland PSC’s initial rejection of BGE’s smart-grid filing. More than 60 years ago, the U....
What Happened in Maryland
State case has national implications for grid modernization.
they emerge. 2
The PSC, “while strongly supporting the overall goals of BGE’s Proposal” concluded, “[T]he Company’s business case raises serious doubts regarding whether the Proposal is…a cost-effective means of reducing consumption and peak demand of electricity in Maryland.”
A final question is, did the PSC fairly consider all stakeholder interests in the regulatory process? It did not. In addition to ratepayers, whom it sought to protect from costs for investments with only the possibility of future benefits, the PSC had an obligation to consider the impact of its decision on the regulated entity. Here, BGE like most utilities, was seeking to transform its operations, with the newest technologies, in order to ultimately benefit its customers. By rejecting the smart grid proposal, the PSC was ignoring application of national energy policy intended to encourage modernization of utilities and efficient use of electric power. Finally, the PSC ignored the role of utilities’ shareholders and lenders. If investment and lending are to be stymied by regulation, the ability of a utility to raise capital to improve service to consumers will be impaired.
At the risk of unfairly labeling the PSC’s strict adherence to cost-of-service regulation as Luddite, the regulatory process should reward efforts to modernize U.S. electric systems. More than 60 years ago, the U.S. Supreme Court recognized that ratemaking calls for certain “pragmatic adjustments” and that it is “not the theory but the impact of the rate order which counts.” 3 Here, the impact of the PSC’s decision is to delay implementation of a new technology that promises customer choice, efficiency and conservation.
1. Troutman Wall Street Journal A.3 (July 26, 2010).
2. A. Kressener, Smart Grid Flexibility , 7 Energy Biz 56 (2010). It is estimated that of the 140 million electric meters in the United States, 40 million are “smart.” Wall Street Journal R.7 (Sept. 13, 2010).