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Crying Foul over Smart Meters

High-tech models can transmit data wirelessly and save energy. But their cost is a cause for concern

By: Christopher Palmeri and Adam Aston
Augsut 14, 2008

Outside nearly every home and business in the U.S. hangs a glass-encased contraption that has barely changed since Thomas Edison built the first utility. It's an electricity meter, and in most cases, it just sits there, dumbly ticking off power consumption. A new generation of smart meters promises to do much more, improving the U.S. electricity grid and saving both money and energy. But the rollouts are already taking some unexpected heat.

Hailed as the perfect marriage of high tech and conservation, smart meters replace the discs and dials of yesterday's meters with microchips and digital displays. When there's a blackout, they can instantly notify utility managers about which households are affected, speeding up recovery times. And paired with compatible appliances in the home, the technology can let customers know what power costs at different times of the day, so they can better manage consumption. Their biggest impact may be on utilities' bottom lines: Since the latest smart meters wirelessly transmit usage data, armies of meter readers could go the way of the milkman.

But this vision could take a while to materialize. San Francisco-based Pacific Gas & Electric Co. is in the midst of the biggest smart-meter rollout in the country. It plans to install some 10 million advanced electric and gas meters by 2012. Yet just two years into the program, the company is already saying it will have to spend $600 million to complete the project, on top of the $1.7 billion already budgeted. That requires an O.K. from regulators, since the costs ultimately get passed along to ratepayers.

The problem? After upgrading hundreds of thousands of meters, PG&E says the smart gadgets came up short. Among other things, they were supposed to send information to the utility over the power lines. But that proved too costly. PG&E is now planning to replace them with sleeker wireless models.

The rising price tag has prompted howls of protest from politicians and consumer advocates. They say the company is adopting expensive, unproven technology just so it can raise rates. The City of San Francisco is insisting PG&E show that the plan is cost-effective. "Before we spend billions of dollars on technology, let's prove we need it," says Loretta Lynch, a former president of the California Public Utilities Commission who teaches at the University of California at Berkeley.

Despite PG&E's glitch, the Energy Dept. and various state authorities are prodding dozens of other utilities to follow suit. The utilities are mostly on board because the new meters cut operating costs, they say. PG&E figures about 70% of its now $2.3 billion program will be recouped in improved efficiencies alone, such as no longer having to send crews to read meters or switch service on or off.

Further benefits could come in the form of lower power use. By designing rate plans that charge higher fees at peak times, the power companies can encourage some customers to run their appliances when demand is lower. Over time, this could spare utilities from having to build new power plants. "This is all about the power of information," says Andrew Tang, the PG&E executive heading the smart-meter program.


Quantifying the customer savings is a challenge. Ahmad Faruqui, a consultant with the Brattle Group, has studied more than a dozen smart-meter tests by utilities and helped conduct a statewide pilot program in California four years ago. He says communities using smart meters show an average 13% drop in peak power usage when customer incentives are in place. But there's a catch: Some 80% of the savings comes from just one-third of the customers.

Critics say there are better ways to trim power use. One is to install smart meters only in the homes of customers who want them. Another tactic is to use less costly technology, such as simple text messages, to relay price data.

Utility executives recognize some customers won't like power companies peering into their homes. At Southern Co., which is on track to upgrade some 4.4 million meters over the next five years, CEO David Ratcliffe recounts how a smart meter tipped off utility agents that one customer was siphoning power from a neighbor's home. When caught, he shouted: "Who are you people!?" Says Ratcliffe: "There will be some who resent this."

The uncertain customer response is leading some utilities to be more cautious. In a test-run in Boulder, Colo., Xcel Energy is outfitting only half the city's 50,000 homes with smart meters. The other half may get some future technologies, or not. Xcel is also investing in advanced sensors that monitor the flow of power from plants to neighborhood transformers. If the company can measure power accurately enough at other points on the grid, "ultimately, the meter could become nonessential," says Roy Palmer, the company's manager of regulatory affairs.