A Free-Market Energy Blog

The Smartest Grid In The Room: California Scheming Goes Awry

By Tom Tanton -- July 15, 2010

Any reader lucky enough to have a new iPhone4 knows that sometimes technology just doesn’t work out the way sellers claim. Other times they do, but not in the way that consumers want or expect.

Such is the case with a major component of the so-called “smart grid”– the smart meter. There is growing agreement among federal and state policymakers, business leaders, and other key stakeholders, that a Smart Grid is not only needed but well within reach.

But it is not. Think of the Smart Grid as the 4G network for electricity. Smart meters, are a prime example of an unnecessary and expensive change that will provide little in the way of consumer benefit. They do, of course, provide utilities and energy marketers and government with a host of new tools, which is why they’re being sold in the policy arena. That plus the fact that makers just want the consumer to pay for something that isn’t (yet) cost effective explains the extracurricular (political) push. Add to all this the government’s insistence–encouraged by intermittent renewable developers lobbying efforts and billions in “stimulus” funding–and the momentum is hard to overcome.

The energy utilities want the meters to send price signals that change as generation costs change. By charging you more during high-usage “peak” times (e.g. hot days) they hope to persuade you to shift your usage to “off-peak” evenings and weekends, as many consumers now do with long-distance phone calls, when generation costs are lower. Of course, after a few days the inconvenience of getting off the couch every hour to read the new signal and turn on or off appliances, may lead people to the conclusion that the savings are not worth the effort. It might be smarter, and more effective to install additional generation capacity that can actually perform on those hot days. 

Smart–Or Scary?

So far, the meters have struck fear in the hearts of consumers concerned about their privacy (not only do the meters send information to customers, they also transmit data on individual electric use back to the utility company); have already cost utility customers in California more than $2 billion; and are blamed for inexplicably higher, not lower, bills in California.

Some claim that just seeing the price information that smart meters can provide will motivate consumers to conserve – a hard argument to buy if you’ve heard the horror stories from Bakersfield, CA where consumers apparently have learned nothing from the new meters except to dread their electric bills, and to hate their utility.

Possibly the most fascinating aspect of the Smart Grid is the absence of an economic rationale. However, industry incentives being what they are (concentrated benefits, diffuse costs), many have bet on much of it being built. But guess what?  People are finally starting to wonder if these smart meters are worth the trouble. Dissenters are turning up at state proceedings.

For a good sample of the issues and alternatives, look at Synapse Energy Economics’ July 8 filing at the New Jersey Board of Public Utilities, submitted on behalf of the state’s Department of the Public Advocate. Synapse is possibly the best firm in the business to represent efficiency or environmental interests, but they stand with the skeptics on smart grids.

The utilities have yet to make a case for the grids. Advanced Metering Infrastructure (AMI) by itself recovers only 50 to 80 percent of its costs if all it gets used for is automated reading, data transmission, and service turn offs. Getting a positive cost-benefit figure requires (real time) time-varying rates for small customers and ways they can either react to rate changes or give their utility the power to do it for them.

Messy Start

California is in the midst of distributing smart meters to everyone over the next few years, but it has already made certain that the necessary rate reforms and controls rate and controls won’t be there. First, the state just passed a law that prohibits any mandatory form of time-varying pricing, with bill protection, prior to 2013. Mandatory real-time pricing without bill protection has to wait until 2020. Utility-controllable thermostats (originally deemed necessary for a positive cost-benefit figure) were removed from the state’s regulatory options a year ago by public protests.

But let’s say that redesigned rates somehow become real-time pricing. Then the increase in consumer bills to pay for the meters should be counteracted by reductions due to peak shifting. The actual levels and persistence of these adjustments are far from clear. The purported evidence for responsiveness comes from controlled experiments in which self-selected consumers got all the hardware for free and were rewarded for their participation. Brattle calculates that a reasonable shaving of the peak under smart metering will save about $3 billion a year nationwide in avoided generator investment ($2.4 billion) and operation ($0.6 billion).

Relative to almost any dimension of the industry, this is a trifling figure. Edison Electric Institute says that total investment by corporate utilities amounted to $84.2 billion in 2008 not including the growing investment from independent power producers.

The smart grid’s promise only materializes after consumers get a bunch of their own equipment – flashy thermostats, premium-price appliances that can talk to the grid, controllers, assorted communications gear, etc. Those are necessary to avoid the get-up-off-the-couch-every-hour problem. Add a few hundred bucks of costs like these, multiply them over, say, 20 million homes and small commercial units, and the time lag towards full implementation becomes clear.

What Savings?

Pacific Gas & Electric is currently grappling with its ongoing smart grid rollout, hoping to eventually hook up millions of northern California consumers to smart meters. A small group of customers in Bakersfield has sued, saying that their bills skyrocketed right after their meters were installed. The plaintiff’s lawyers are trying to escalate the case by bringing in the meter maker, and the company that makes the communications chip. What’s going on? It will surely take a thorough investigation and lengthy case to find out.

PG&E, of course, said the case has “no merit” and, while it’s on the defensive, the company surely won’t help with public efforts to unravel the mystery. It’s not difficult to believe that such a new technology might have its hiccups, though.

Spying Eyes

Skyrocketing bills, off-the-charts energy usage, the complaints just keep flooding in following a CBS 5 investigation into Pacific Gas & Electric’s rollout of their new Smart Meters in the San Francisco Bay Area.

The new meter allows the utility to read your energy usage remotely, eliminating the need for meter readers. But what’s it doing for customers? Hundreds don’t like them. And now, there’s a growing rebellion from people who don’t want them. Mark Dieteman is taking a stand against PG&E’s new smart meters, putting his old meter under lock and key. “What I basically said to PG&E is: You’re not coming by to put this on my house, period.” And why? “To me it’s unconstitutional, it’s an invasion of my privacy,” he said. Because the new meters allow PG&E to remotely read a customer’s usage every hour. The company said in future, that will allow homeowners to monitor and reduce their energy use. Dieteman also said, “It permits PG&E to actually come into your home at any time during the day and know what appliances you are using. This is corporate intrusion on your life.” Patricia Young of Brentwood takes it a step further, calling it anti-American. “I am against it,” she said. “It’s an infringement on our rights and our liberties.” Overstatement? Maybe not, said attorney Lee Tien with the Electronic Frontier Foundation. “It’s really very clear, both under the Constitution, the 4th

Amendment, the privacy of the home is really the most important value,” Tien said.

And Tien said those meters could tell the government, even the police, what’s going on in your home. “Inside your home is where the government isn’t supposed to intrude without some kind of a warrant usually. And yet when this data is flowing freely outside your home, then the information gets outside that protected boundary and you start to have a problem.”

Which is why Dieteman said he won’t accept a Smart Meter. “This is where I take my stand. I do have a choice,” he said. But if you don’t want a Smart Meter, do you have to take one? Let’s go to the rule book: The Tariffs, approved by California’s Public Utilities Commission. The answer is in rule number 16: that “PG&E shall at all times have the right to enter…premises, for any purpose connected with the furnishing of electric service.”

And if you want to argue it, don’t forget rule number 11. If customers don’t comply, it said, “PG&E may terminate (their) gas and electric service.”

Letters from PG&E tell customers exactly that.

“They are threatening that if I don’t let them they are going to turn my gas and electric off regardless of the status of my bill, which is paid,” Young said.

“We haven’t seen an actual termination of service by the utility, but we have heard anecdotes,” said Matthew Freedman with consumer group TURN. And Freedman thinks it’s more than a threat. “If people tell PG&E they don’t want a Smart Meter, we expect that PG&E will try to ram it down their throats,” Freedman said. PG&E said that’s not true, that the utility wants to work with customers. The company declined to do an interview but told CBS 5 Investigates in a statement that regarding privacy, “Protecting our customers’ confidential information is a top priority” and that “The Public Utilities Commission provides very strict prohibitions on specific customer information being provided to third parties without the customer’s written consent.” But a Smart Meter at Mark Dieteman’s house? He said, “If they show up they are going to have to go through me to get at it. It will take a court order and a whole bunch of police officers. PG&E needs to be stopped in their tracks here.”

Not something that PG&E likely wants to hear. “That they have to force these meters onto people’s premises against their will, this has got to be an absolute nightmare for them,” Freedman said.

Job Stimulus?

As part of the economic recovery package passed last year, a significant amount of money was tagged for investing in the smart grid, from R&D to deployment. Overall, the ARRA has spent over $6.5 billion dollars on developing a smarter grid, with $380 million spent in California in addition to ratepayer funds.

The ARRA was supposed to be a job creator/saver, but at least with the smart meters remotely reading energy consumption, one entire class of workers—meter readers—have been put out of work, to the wrath of some unions. The Utility Workers Union of America Local 132 has sought CPUC help, charging Southern California Gas (SoCal Gas) with retaliation measures against union workers. SoCal Gas has withdrawn a proposal to create new jobs for its meter-reading workforce because of the union’s continued opposition to the utility’s advanced metering infrastructure case at the commission, the union said in a June 28 letter to CPUC President Michael Peevey.

The union opposed the utility’s application, which the commission approved in April, and sought a rehearing of that approval. In notices to its employees, SoCal Gas said it pulled its offer to create hundreds of new jobs for meter readers in a direct-assistance program because the union continued to oppose the AMI project. The union urged commissioners to look into the issue, complaining of a regulated utility threatening union workers with lost jobs in order to coerce the union to withdraw from a CPUC proceeding. Well, at least the lawyers are employed.

Separately PG&E is authorized to spend $1.7 billion of ratepayer funds on their advanced metering infrastructure. Other utilities in California are spending freely as well.


As with other aspects of California energy policy there is a vast difference between a (maybe) good idea and its implementation. California energy policy makers, and the special interests that feed on those policies, need to stay better focused on the needs and concerns of the consumer.

Rushing new technology into use for the purpose of rushing new technology to use is just that—rushing. Unnecessary costs are incurred and often good technologies get a black eye because they weren’t given the necessary time to debug. The smart meter roll out is one example of a continuing habit.


  1. J Mayeau  

    Gunther’s scenario describes the life of a hypothetical elderly customer in 2015, “Meg A. Watts.” Under the scenario, her tech-savvy son, Less Watts, sets up her account. Due to Meg’s health, the utility grants her a medical exemption allowing her to override utility control of her air conditioning.

    The state will allow grandma to turn her A/C back on, but only if she has a note from Doctor.

    Tell me we don’t live in a fascist state.

    I remember at the time the discussion on PCT’s at Patterico Pontifications was wagering which of the bill of rights it most offended. My personal favorite was the 3rd amendment.

    My contention being that the utility, acting as an officer of the state, makes their remote control thermostat a foot soldier effectively billeted in my livingroom.


  2. Steve C.  

    Another in a long series of examples of regulatory incompetence squared. You would think that the mission of any public utility regulator would be to ensure safe, dependable utility service at a reasonable cost. Isn’t that something consumers have the right to expect when they grant the government the power to regulate an industry? Instead we have a conglomeration of service providers, regulators, politicians and outside interests (Greens?) colluding to get customers to eat the dog food the dogs find distasteful. The worst part is that there are so many assaults on the citizenry by government forces that one is almost paralyzed into inaction. Is it any wonder that people are frustrated?


  3. Tom Tanton  

    Steve C., yes of course it is easy for people to get frustrated, mopre especially in California. Part of what keeps me going are the words of Plato…
    “One of the penalties for refusing to participate in politics, is that you end up being governed by your inferiors.”


  4. Robert Hargraves  

    Here’s the letter I sent to my local newspaper, The Valley News

    Sunday’s Valley News reported local “Smart Grid” investment grants. NH Electric Coop received $35.1 million to install “smart meters” for 75,000 members — $468 per meter. Over $350 million is for meters in VT ($253 each), ME ($301 each), and MA ($1417 each). The expected benefit is that consumers who are aware of the utilities’ instantaneous power costs might defer energy consumption to less expensive times. You think? This wouldn’t reduce total energy consumption, but might shift it around to reduce peak demand a bit, shaving utilities’ capital costs.

    Smart Grid advocates imply utilities know little about electricity demand, yet SCADA (supervisory control and data acquisition) systems have managed the grid for decades. Half a century ago the utilities provided simple, real conservation incentives to consumers with separate meters and power prices for water heaters with timers that only heated water tanks at night.

    There are wiser ways to spend money to conserve electricity. Meanwhile, set your dishwasher to start late at night.


  5. Ed Reid  

    Mr. Hargraves,

    The difference in the cost per meter among the states is breathtaking. Are you aware of the reasons for the differences?


  6. Jon Boone  

    Yet another impressive–and timely–post from Tom Tanton. People should expect any newspeak about energy in California to be fraught with Orwellian policies fertilized by doublethink/doublespeak–and therefore unable to produce viable–rational–policy progeny.

    Given a resource as vital as electricity is to the general welfare of humanity, it is NOT at all clear that this aspect of the smart grid is anything other than a dumb idea, more makework for engineers at the expense of too many things most people should hold very dear.

    As Tom implied early on, far better to build additional firm capacity to handle demand at all times than to arbitrarily attempt to control demand at certain times by forcing, or gulling, consumers to pay premium prices for hyped up gadgetry. As others have pointed out, the costs of meeting peak demand pale beside the costs of providing for basic and midlevel demand cycles.


  7. Tom Tanton  

    Ed, one of the reasons for the differences in meter cost from state to state is simply “administrative” costs–the salaries and what not for the regulators who “must” oversee the programs. States with heavier regulatory burdens (and more “consumer watch dog” intervenors) invariably have higher per unit costs. I haven’t done that quantitative analysis, just anecdotally. The only good news is California hasn’t taken the lead on that metric :-).


  8. Ed Reid  

    Tom, CA would be hard pressed to rival Taxachusetts in that regard. A ratio of nearly 6:1 is a lot of regulators, consumer advocates and intervenors. 😉


  9. Tom Tanton  

    as I noted, that only one of the reasons. Another is “start up” costs which, when spread only over the first several units drive the cost/unit upwards. Note that the various states are in various stages (some just starting, some with a little more history) so direct comparisons are not quite accurate, without vintage and other confounding factors considered.
    …but California can rival anywhere for the number of regulators and “consumer advocates” (how did they co-opt that name anyway?)


  10. Ed Reid  

    Several states have offices of the Consumers’ Advocate or Consumers’ Counsel. They make rate case negotiations a real “treat”. 😉


  11. cmcintma  

    Read NOAA’s latest study ‘Advancing the Science of Climate Change’ and raise your interest and awareness beyond your own immediate comfort and interests.


  12. Ben  

    What bugs me more than anything is that they are advertised as saving energy when they simply don’t. There is no other way to put it.

    I stand with pretty much everyone in my city (the last, great cowboy town). If anyone attempts to install remote control of my air conditioning, they will be met with a not very pleasant combination of steel and lead.


  13. Tom Tanton  

    ok, Ben. As I consider myself a cowboy as well (breed limosine and short horns) I have a test to see if you’re really who you say. Three men in a pickup, all look and dress same…which one’s the cowboy?


  14. Bill Chaffee  

    Southern California keeps running ads for the “smart grid”. Ratepayers are forced to pay for the promotion of a product that they don’t need. Why do they feel the need to run so many ads?


  15. Tom Tanton  

    Mr.Chaffee…they run the ads precisely because people don’t need/want the product.


  16. Oatley  

    Often times you’ll hear advocates say that smartgrid technology will lower CO2. Appliances in a home still run the same number of hours, just different hours. In the vernacular of the industry it’s called demand shift, and its impact on CO2 is marginal at best.


  17. Tom Tanton  

    Oatley, shifting demand–typically to off peak hours–for many grids in U.S. means shifting more to coal and away from Nat Gas and Hydro (on an aggregate kWh basis). Often demand shifting (or DSM) causes increased CO2 for this reason. It’s a function of mix and vintage of supply sources in each grid and not generalizable, but I believe CO2 is increased as often as not for the numerous grids I’ve looked at over the years.


  18. Bill Batt  

    How are these “smart meter” read? Direct-connect landlines? Transceivers? Ponying onto the customers telephone service?


  19. Linda Goodman  

    Learned much from the article, thanks Tom. It’s May 2013 and the truth about smart meters is thankfully becoming wildly apparent. I’m in MA and we dodged the bullet. Just discovered this powerfully informative site and will spread the word. Off topic and not to criticize, but though the use of the word ‘consumer’ when referring to people is now universal, I think this article said it best: http://business.time.com/2012/04/18/should-we-stop-referring-to-people-as-consumers/ The article doesn’t mention that slugs, roaches and rats are consumers too, though they’re not customers or citizens – more food for consumption?


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