Smart Meter, Dumb Idea?

From the Wall Street Journal:

Not everyone thinks smart meters are such a smart use of money.

Utilities are spending billions of dollars outfitting homes and businesses with the devices, which wirelessly send information about electricity use to utility billing departments and could help consumers control energy use.

Proponents of smart meters say that when these meters are teamed up with an in-home display that shows current energy usage, as well as a communicating thermostat and software that harvest and analyze that information, consumers can see how much consumption drives cost — and will consume less as a result.

Such knowledge, however, doesn’t come cheap. Meters are expensive, often costing $250 to $500 each when all the bells and whistles are included, such as the expense of installing new utility billing systems. And utilities typically pass these costs directly on to consumers. CenterPoint Energy Inc. in Houston, for instance, recently began charging its customers an extra $3.24 a month for smart meters, sparking howls of protest since the charges will continue for a decade and eventually approach $1 billion.

Consumer advocates fear the costs could be greater than the savings for many households. They also worry that the meters will make it easier for utilities to terminate service — so easy that they will disconnect power for small arrearages that wouldn’t have caused a termination in the past.

What’s more, the cost to consumers could go beyond the extra charges imposed by utilities. That’s because consumers usually are left to their own devices (literally) when it comes to adding the in-home displays and home-area networks that use data from the meters to control appliances and other pieces of equipment.

“What we’re most concerned about is that consumers realize real benefits from the meters” from the start, says Michelle Furmanski, general counsel for the Texas House Committee on State Affairs, which is considering legislation that could establish more protections against disconnections.

Ms. Furmanski says that her committee is also looking into the lack of information on meter deployments that is available to the public. The utilities have claimed “trade secret” protections for important financial details about their meter programs, including contract terms with vendors. Such secrecy makes it impossible for consumers to analyze why costs for what appear to be similar services vary so much among utilities.

Texas law requires rapid smart-meter deployments, leaving consumer advocates little room to negotiate. But Don Ballard, the Texas consumer counsel, was able to negotiate an agreement with utilities in which CenterPoint and Oncor Electric Delivery, a unit of closely held Energy Future Holdings Corp., agreed to spend $20.6 million on consumer education and $17.5 million to purchase display units for low-income families.

Legislation is also pending in the state legislature that would force utilities to seek federal stimulus funds to partly pay for their meter programs and could limit the ability to levy surcharges. Instead, utilities would be required to undergo full rate reviews so that offsetting savings might be identified as a way to minimize the impact on bills.

Jack Oliphint, a retiree who lives 20 miles north of Houston in Spring, Texas, thinks the $444 he will pay CenterPoint in coming years for a smart meter is too much, considering what he sees as rather elusive benefits. “There’s no mystery about how you save energy,” says the 71-year-old retired furniture salesman. “You turn down the air conditioner and shut off some lights. I don’t need an expensive meter to do that.”

In other states, such concerns have led to the scaling back of smart-meter deployments.

Two years ago, Connecticut Light & Power Co. proposed to provide smart meters for all of its 1.2 million customers. “But then we heard from the Connecticut attorney general asking us, why don’t you walk before you run?” says Mitch Gross, a spokesman for the utility. “He was concerned about the cost.”

As a result, the utility will do a pilot program this summer to test customer acceptance of smart meters and variable pricing. Some 3,000 customers have volunteered, and the utility intends to see whether people cut energy use during times that prices rise. Some consumers will have “energy orbs” in their homes that change color, a visible indication of how prices are changing, as a way to stimulate behavior changes.

Instead of the estimated $255 million cost of a full meter deployment, the test will run $13 million.

Concerns have arisen in California, too, where the state’s three big investor-owned utilities are expected to spend at least $4.3 billion for millions of new meters by 2012. Utilities already are looking at variable-pricing programs designed to discourage heavy use of electricity during peak periods like hot summer days. The meters, they hope, will make variable pricing more effective by giving people clear incentives to decrease energy use when wholesale energy prices are highest.

But consumer advocates in California also complain about the cost. “There are cheaper ways to meet the goal of reducing energy use,” says Marcel Hawiger, an attorney for The Utility Reform Network, or TURN, in San Francisco, a consumer advocacy organization.

For instance, Mr. Hawiger favors expanding existing air conditioner-cycling programs, where utilities have the ability to control air conditioners so they take turns coming on and off, reducing the drag on the electric system. He says the air-conditioner controllers can provide much of the benefit at a fraction the cost of installing millions of smart meters. These programs control temperature settings and compressors to reduce overall energy use.

PG&E Corp., a San Francisco utility, estimated the cost of its meter program at $1.74 billion in July 2006, but recently got permission to spend an additional $467 million, pushing the cost to $2.2 billion for 5.4 million electric meters. It has installed 557,000 meters so far with the capability of letting consumers go online and read energy data. So far, however, only 12,000 consumers have taken advantage of it. PG&E says it hasn’t yet marketed the program and it hasn’t activated the home-area-network capability, which will allow people to take information and put it to work by setting up networks to control appliances, furnaces, air conditioners and other devices.

PG&E has 124,000 customers enrolled in an air-conditioning-cycling program and hopes to raise that number to 400,000 customers by the summer of 2011, but that will add $178 million in program expense. Each thermostat costs about $300.

It sees the two programs as complementary since the air-conditioning program reduces peak use but it requires meters to measure and time-date the reductions. Without both devices, air-conditioning use might drop, but a utility wouldn’t know whether it happened in a peak pricing period or not. Smart meters “allow us to quantify peak reductions due to smart AC devices,” says utility spokesman Paul Moreno, adding that both programs were “well examined” by the state Public Utilities Commission.

PG&E intends to educate customers about equipment that can be installed to form home networks, too, but won’t sell the products or support the devices for at least a year or two. Mr. Hawiger says this means that there will be millions of smart meters bolted to homes but full functionality won’t happen anytime soon, reducing the bang for the buck.

Southern California Gas Co. now is trying to get $1 billion for smart gas meters. TURN says the expenditure would be a waste of money because natural-gas pricing isn’t subject to the volatility of electricity pricing, since gas can be stored but electricity can’t. TURN is asking regulators at the Public Utilities Commission to turn down the request for funds.

The gas company says savings from reduced labor (1,000 meter-reader jobs would be eliminated) and transportation costs, among other things, would cover 80% of the estimated capital cost by 2015. Meter costs would push up monthly gas-service rates for residential customers by $2.50 a month, or 3%, in the initial years, but would be followed by reductions after 2017, once capital costs were recovered.

“There won’t be rate shock,” says Anne Shen Smith, senior vice president of customer service for Southern California Gas Co., a unit of Sempra Energy, San Diego.

Meanwhile, Pepco Holdings Inc. announced last month that it will buy more than 430,000 electric and gas meters for one utility unit, Delmarva Power, in what could be the first leg of a two million-meter rollout by 2013 for utilities it owns in Delaware, Maryland, New Jersey and the District of Columbia. The Delaware portion will cost about $100 million, or $235 per metered location, according to the company.

Pepco is starting with Delaware because “we offered more regulatory receptivity than other states,” says Michael Sheehy, deputy director of the Division of the Public Advocate for the state. “The others were less convinced of the benefits.”

Pepco says it hopes regulators in all states will want the meters once they see how useful they are.

– Ms. Smith a Wall Street Journal staff reporter in San Francisco. Write to Rebecca Smith at

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