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Critical Peak Rebates at BGE, Pepco Will Not be Limited to SOS Customers

March 19, 2012

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Baltimore Gas & Electric and Pepco-Maryland will make their critical peak rebate programs available to all distribution customers within eligible customer classes, not only Standard Offer Service customers, under a consensus program design contained in a Maryland dynamic pricing working group report.

Both utilities have offered into the PJM capacity market the Summer 10 x 6 Limited Demand Response product for the 2014/2015 PJM delivery year. Per the PJM Reliability Assurance Agreement, Limited DR requires availability for demand reductions for up to 10 times on non-holiday weekdays during the Summer (June through September), and will be capable of maintaining each demand reduction for up to 6 hours between 12:00 p.m. to 8:00 p.m.

The critical peak rebate paid to customers will be used to achieve these demand reductions. The critical peak rebate pays customers for reducing load below a baseline during called events, with no penalty for non-action. The SOS generation rate will not change during these critical events, with the rebate alone incenting customer behavior.

Both utilities propose an initial critical peak rebate of $1.25 per kWh for the initial PJM delivery year of 2012/2013 (which only applies to Pepco if a proposal to phase-in the critical peak rebate for 5,000 customers in the summer of 2012 is approved) and for 2013/2014, which applies to both Pepco and BGE.

As previously reported (see 9/3/10), Pepco's originally proposed, and accepted-in-principal, dynamic pricing design would have only provided critical peak rebates to SOS customers. However, after discussion within the working group, Pepco has agreed to include all distribution customers within participating customer classes in the critical peak rebate program starting in 2013. Pepco's initial roll-out of the critical peak rebate to 5,000 customers will be limited to SOS customers, for 2012 only.

More specifically, BGE and Pepco will offer the critical peak rebate to all residential distribution customers with an active residential account, regardless of energy supplier, on a default basis. The availability of the critical peak rebate to non-residential customers will differ by utility.

BGE does not plan to expand the critical peak rebate program to non-residential customers due to the availability of energy curtailment programs for commercial customers who can reduce their load voluntarily or upon an emergency call from PJM, the extensive penetration of time-of-use rates, and the proliferation of real-time pricing rates.

In contrast, Pepco will offer the critical peak rebate to all non-residential "mass market" customers, regardless of energy supplier, on a default basis. Unlike larger commercial and industrial customers, Pepco believes these smaller non-residential customers have had minimal opportunity to participate in competitive demand response market opportunities.

At BGE, the critical peak rebate will be available starting June 1, 2013, for those residential customers with active smart meters. BGE currently forecasts that approximately 40% of its residential customers will have smart meters by that date. During the first summer only, BGE expects to exclude approximately 1,000 customers, to establish a control group to be compared to those who will be participating in smart energy pricing. These randomly selected control group customers would be located in geographic regions that are highly saturated with smart meters, so they are comparable to customers eligible for smart energy pricing.

The working group could not reach a consensus on a phase-in schedule for the critical peak rebate at Pepco. Pepco proposes that the critical peak rebate be phased-in beginning with approximately 5,000 residential customers receiving SOS whose smart meters have been activated by May 2012 and extending to all residential distribution customers in 2013. Pepco proposes to prepare a report of its summer 2012 experience and to share that experience with interested stakeholders, which will be used to refine and improve the dynamic pricing customer experience in 2013, including customer education materials and approaches.

Similarly, Pepco proposes that the critical peak rebate be phased-in to no more than 1,500 small non-residential mass market customers in 2013, and extended to all small non-residential distribution customers in 2014. The final number of non-residential customers phased-in to the program in 2013 will be determined after the conclusion of the 2012 summer in consultation with the working group.

For both BGE and Pepco, customers who accept their electric supplier's dynamic pricing offer, or an offer from a Curtailment Service Provider (CSP), which has been monetized in the PJM market(s) or directly tracks PJM market prices, must be removed from the applicable utility critical peak rebate tariff to avoid any double counting and double payment of demand reductions.

Under this proposal, it is the Working Group's assumption that PJM will develop an approach for mass market customers that is similar to its existing approach for dynamic pricing programs utilized by certain commercial customers. Specifically, the alternative supplier or CSP must first contact PJM in order to attempt to monetize load reductions into the PJM markets, with PJM working directly with the utilities to confirm the individual customer's applicability.

The critical peak rebates will be rewarded as line-item credits on customers' bills.

There will be an annual true-up to calculate the difference between actual PJM market revenues (net of PJM credits and charges) and the critical peak rebate amounts paid for the current PJM delivery year. BGE and Pepco propose that this annual dynamic pricing rebate true-up should be bundled as part of the nonbypassable EmPOWER MD Charge on the customer's bill, since all distribution customers will be eligible for the program. It is unclear whether customers who opt-out of the utility critical peak rebate in favor of a competitively offered dynamic rate offered by a retail supplier or CSP, and who thus do not contribute to any critical peak rebate over/under recovery, will be required to bear this portion of the EmPOWER MD Charge.

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