Smart Meters, A Dumb Idea

Even the darkest cloud can have a silver lining. In 2001, Californians responded to the meltdown of the deregulated electricity market with unprecedented conservation efforts. But those efforts are threatened by an experimental program that is no more likely to benefit consumers than the deregulation experiment did.

Top officials at the California Public Utilities Commission and California Energy Commission are looking to dismantle a successful conservation program in favor of a whiz-bang technology known as "smart meters. " These largely untested, unproven gadgets would enable utilities to charge customers significantly higher prices for electricity during certain times of day and so would eliminate California's inverted-rate system, which for decades has encouraged conservation with lower rates for "baseline" electricity use spread over a billing period. The fix is an elaborate, risky and unnecessary one for a system that isn't even broken.

Californians currently use less electricity per capita than the residents of any other state in the nation, thanks largely to a temperate climate that does not require excessive heating or cooling. Ambitious state building and appliance codes have contributed mightily to lower energy use, and large expenditures (funded by electricity rates) on efficiency programs such as appliance rebates and subsidies for more efficient industrial processes have helped as well.

But the state's baseline rate structure also deserves credit for encouraging conservation. Consumers whose energy use stays at or below the baseline amount for the month are charged a lower rate. Higher use triggers a higher billing rate, a simple but powerful incentive to conserve. "Smart meters" and the ability to charge different prices at different times of the day would not encourage less consumption, but rather would shift existing consumption to other hours of the day.

One of the proposals, called "critical peak pricing," would charge consumers rates 10 times higher than current levels during the afternoon on the 15 summer days predicted to be hot enough to strain electric reserves. The ultrahigh rates could add as much as $10 a day to some customers' bills. Of course, meters this "smart" don't come cheap. Installation and upkeep could boost bills for all consumers an additional $30 per year.

Early indications are that the program will cost more than it saves. Not surprisingly, there just aren't enough residential customers running non- essential appliances during summer weekday afternoons. A recent pilot project confirmed this, as households that tested the "smart meters" lowered energy use by about 13 percent when prices were artificially jacked up by more than 500 percent. While large homes with air conditioners were able to reduce their electric use, that merely affirms the value of conservation programs that target air conditioner use, a far cheaper approach to reducing peak load. A costly experiment that installed "smart meters" in large commercial enterprises led to similarly disappointing results.

The advocates of "smart meters" haven't allowed hard facts and failed tests to cloud their zeal for the expensive gadgets. With deep roots in the industry, the heads of both the California PUC (Michael Peevey, who formerly ran New Energy Ventures, an energy-services company) and the California Energy Commission (Joe Desmond, former CEO of another energy-services company, Infotility) are champions of the cause.

But the portent of higher bills with no certainty of reduced peak-energy use has caused prudent legislators to sound a cautionary note. Senate Bill 441 has emerged as a sensible safeguard, requiring a cost-benefit analysis before an expensive, high-tech boondoggle can be foisted on consumers. The bill is proof that Sacramento learned something after the deregulation debacle: California needs smart ideas, and smart meters don't meet that standard.

Marcel Hawiger is staff attorney for the Utility Reform Network (www.turn.org).