Maryland regulators have authorized Delmarva Power and Light to deploy its advanced metering infrastructure (AMI) proposal.
However, the state Public Service Commission (PSC) also said in its May 8 order that its authorization does not constitute a determination as to the prudence of the program’s costs. “We will not allow Delmarva to recover those costs until we determine, through a base rate case, that it in fact delivered a cost-effective AMI system, the individual and collective benefits of which are worth the ratepayers’ investment,” the PSC said.
If the proposal, as implemented, falls short of that standard, the PSC said it will determine what level of cost recovery the public interest requires, so that risks will be borne by Delmarva Power and not its ratepayers.
A Delmarva Power spokesperson told TransmissionHub May 22 that smart meters will be installed on the homes and businesses of nearly 200,000 Maryland customers, noting that installation will begin when project details have been finalized.
“At this point, we don’t have cost impact estimates finalized,” he said.
The company plans to implement an extensive education campaign to provide customers with smart meter information.
The spokesperson also said that smart meter deployment for Delmarva Power’s Delaware electric customers was completed in 2011.
Among the benefits of smart meters, the spokesperson said that installing advanced technology and investing in the smart grid is critical because it helps customers control their own energy use, and helps to protect the environment by reducing carbon emissions through remote meter reading.
In its order, the PSC said that after evidentiary hearings in 2009 and 2010, and upon reviewing briefs, it issued an order in September 2010, approving in principle the joint proposal of Delmarva Power and Potomac Electric Power (Pepco) to deploy AMI in Maryland.
Delmarva Power and Pepco are owned by Pepco Holdings (NYSE:POM).
While Pepco was authorized to proceed with deployment of its proposal, the PSC deferred authorizing deployment for Delmarva until it could review a revised benefits-to-costs analysis.
The PSC also said concerns on whether the companies’ proposed investment in AMI will prove cost-effective were mitigated in part by the U.S. Department of Energy’s award to Pepco of a $104.8m smart grid investment grant. Delmarva Power’s grant application was not selected for award, the PSC said, noting that without a federal grant, the projected operational savings would not offset the costs of deploying its AMI proposal.
The PSC directed Delmarva Power to amend its business case so it would include, for instance, the full estimated cost of a comprehensive customer education and communications program. Delmarva Power submitted its amended business case and its associated benefits-to-costs analysis in December 2010.
The company updated its residential customer price elasticity according to the price elasticity of the 2009 Baltimore Gas and Electric (BGE) smart energy pricing pilot. These results show that residential customer price response is moderately higher than previously estimated, which results in a higher estimated residential customer load impact reduction. BGE is a subsidiary of Constellation Energy (NYSE:CEG).
The PSC also noted that Delmarva Power now assumes that AMI-enabled dynamic pricing will be phased in during 2014 for 5,000 residential standard offer service (SOS) customers and 2015 for all remaining residential SOS customers. The company has assumed that AMI-enabled dynamic pricing for SOS non-residential customers will be phased in starting in 2015 for 1,000 customers and 2016 for all remaining non-residential SOS customers.
Delmarva Power presented new projections of costs and benefits on a present value revenue requirements (PVRR) basis. The projected cost PVRR in a post-deployment project life scenario (10 years) is $80.1m.
Delmarva Power projects its AMI project remains narrowly cost-effective with a benefits-to-costs ratio of 1.196 for a post-deployment project life of 10 years. Therefore, the PSC added, the record supports the conclusion that the company’s AMI system can be cost-effective, albeit with perhaps a smaller margin of error than BGE’s or Pepco’s AMI system.
The PSC also said that Delmarva Power included the anticipated costs of an education plan as well as the costs associated with communicating with customers to inform them of critical peak periods. That current forecast for a post-deployment project life (10 years) is $7.3m total.
While the PSC found the company has reasonably estimated those costs, how effectively Delmarva Power educates customers will play a key role in the company’s ultimate cost recovery. The PSC directed Delmarva Power to submit a comprehensive customer education and communications plan, which the PSC expects the company to implement in advance of AMI deployment in Maryland.
Delmarva Power expects it will start installing the AMI meters in September, subsequent to the anticipated completion of Pepco’s AMI deployment. The currently expected completion date is August 2013, the PSC added.
Among other things, the PSC said Delmarva Power is to establish a regulatory asset for the incremental costs associated with the AMI deployment and once it has delivered a cost-effective AMI system, it may seek cost recovery in a base rate proceeding.
Furthermore, the PSC approved the concept of a dynamic rate schedule that combines the SOS rates in effect at the time the schedule is implemented with the critical peak rebate opportunities for residential, small commercial and medium commercial customers once AMI has been installed.