Rate Base, but no Tracker, for Maryland Smart Grid Program Costs

Baltimore Gas & Electric (BG&E) won Maryland PSC approval late Friday for an $833 million smart grid plan pursuant to which it will install 3,000 smart meter devices per day through 2014. Without timely PSC approval, BG&E risked losing approximately $200 million in Department of Energy subsidies to implement the plan.

The PSC rejected BG&E's original plan, which included the large-scale build-out of advanced meters and mandatory time-of-use (TOU) billing because the PSC opposed (1) granting BG&E a rate tracker to recover smart grid costs as they are incurred as opposed to following a prudence determination, and (2) imposing TOU rates on all retail customers. The PSC also faulted the original BG&E proposal as doing too little to educate customers on how smart grid programs would work. The PSC nevertheless invited BG&E to resubmit its proposal to address these concerns.

BG&E's revised plan, which included the same smart grid technology as originally proposed, makes major changes. Smart grid expenditures are reclassified "regulatory assets" the prudent costs of which would be recovered in rate-base rather than through a tracker. Second, TOU billing is an option, not a mandate. Third, customer education is prioritized. Although the PSC complained that this revised plan "does not entirely cure" its concerns, it nevertheless offered "potentially significant benefits to customers," warranting its acceptance.

The PSC's rejection of a cost tracker is significant since other jurisdictions have authorized trackers ostensibly to promote smart grid expenditure. According to the PSC, a tracker would have inappropriately tilted project risks onto rate payers. The PSC preferred the revised plan because classification of smart grid costs as "a regulatory asset, recovered through base-rate cases, provides the company with an opportunity for recovery of prudently incurred costs, while synchronizing the cost to customers most closely with the onset of benefits," which will entail "ongoing rate-case review of BG&E's costs and recovery."  The PSC went on to explain that, "[a]t the time that the company has delivered a cost-effective [advanced metering infrastructure] system, the company may seek cost recovery into base rates."