Is the Worst is Yet to Come for Smart Meters?

Smart Meters have failed to win over customers as they are rolled out by utilities, but the worst is yet to come when customers realize the real purpose of the smart meter is to substitute average cost pricing that has kept rates stable for 100 years with dynamic pricing that raises the unit price of power just when you need it most causing utility bill spikes on peak load day usage to cut demand.

This realization by customers of the real purpose of smart meters is likely to produce a firestorm of angry reaction much worse than the Bakersfield Effect that will threaten the entire clean energy agenda undermining smart grid as a strategy and dragging renewable energy and emissions reduction down with it as the cumulative cost of our policies hit with dynamic pricing precision in our utility bills.

Some will accuse me of fear-mongering, but there is a dis-ease among customers about what smart meters are really all about that keeps repeating itself.   I received an online story dated December 31, 2010 entitled “PG&E Customers Still Skeptical of Smart Meters.”  It popped up in one of the many energy trade press pieces I get in my email each week. This one was IntelligentUtility and the story it was updating was from the Appeal Democrat in Marysville, California on September 4th.  Nearly four months had passed but the story remained the same.

Why is that?

I think it is because for all the hype and billions spent to rollout and install smart meters the program is turning into a utility version of cash for clunkers.  Far from exciting us, smart meters are turning us off and making us mad.  A smarter electric power grid may be a good thing for the electric power industry but the benefits to consumers are difficult to quantify.

When I first started writing about this almost a year ago I called it the “Bakersfield Effect” after the problems for PG&E that boiled over in Southern California when customers showed up at a press event called by PG&E to tout the rollout of smart meter installation.  Senator Flores was there for what was expected to be a good news media event.  The problem was customers were mad about their high utility bills and waving them in the air demanding answers and blaming their new smart meters for the it all.

After the Bakersfield embarrassment the CPUC ordered an investigation and forced PG&E to pay for an independent consultant to evaluate the situation.  The Structure Group is a credible, responsible organization and their analysis reported that the smart meters they tested were accurate and the reason for the rising utility bills were higher than normal summer temperatures, increased customer use of electricity and CPUC approved rate increases.  They also faulted PG&E customer service for poor communication and bad planning in explaining the smart grid rollout to customers.

If the Structure Group report was supposed to somehow make the problem go away it has not worked. Since the story in the Appeal Democrat in Northern California a year later is a replay of the Bakersfield Effect for PG&E, the California Public Utilities Commission and incumbent politicians who have all learned to avoid PG&E press conferences.

The reason is the Structure Group is right.  High utility bills have little to do with the smart meter.  They are caused by the rising marginal cost of electricity from our public policies to reduce emissions, expand renewable energy and shift pricing toward rate plans that encourage energy efficiency and demand response.

But the smart meter will get the blame because it will be shown to be the great enabler of real-time pricing, time of use pricing or dynamic pricing as it is variably called—but it means one thing—we are in a slow motion process of abandoning the average cost regulatory pricing strategy that kept rates stable and substituting dynamic pricing which works by giving us a price spike when we use more electricity on peak days.  It is perfectly good economic theory, but it is still going to hurt when it bites.

Customers do not see dynamic pricing coming—and will be mad as hell when they realize what has happened!

Meanwhile, smart meter conflicts continue:

  • Fairfax, California town council tried to ban smart meters arguing the electromagnetic fields (EMF) were a threat to public health in Marin County because of the wireless meter readings.
  • The CPUC dismissed a complaint by the EMF Safety Network that had demanded a public health environmental impact study on the radio frequency (RF) emissions from smart meters
  • AB37 would have forced utilities to offer customers a hard-wired alternative to a wireless smart meter. It was introduced late in the Legislative Session by Assembly Member Jared Huffman of San Rafael but died at the end of the session and there is no word on if it will be re-introduced, but PG&E is under growing public pressure to offer a hard-wired alternative to customers.
  • PG&E responded to the stinging complaints by proposing changes in its tiered rate structure essentially combining the top two tiers to lessen the peak A/C hit experienced on the warm side of the Hills and in the Central Valley during the summer.  Consumer counseling representatives are urging customers to sign up for level billing plans that average out bills over the course of the year to avoid bill spikes.
  • All three investor owned utilities are marching full speed ahead to finish the installation of their smart meter rollout programs driven by Federal stimulus funding requirements, CPUC schedules and the desire to get this problem behind them.

Warning: Dynamic Pricing Ahead

The worst is yet to come for Smart Meter complaints as the process moves from meter installation to changes in the rate plans to expose customers to dynamic prices to encourage them to reduce energy demand.

Smart meters are a condition precedent to dynamic pricing or time of use rates.  Once the smart meter rollout is complete utilities are expected to file new rate plans with the CPUC to progressively rollout these new rates. PG&E customers already have time-of-use rates available to for all customer classes with a smart meter on an optional basis.

In February 2010, the CPUC adopted new rates plans authorizing dynamic electricity prices for all California ratepayers. These rates move up and down “dynamically” to reflect the cost of power generation when demand is high.

“When combined with PG&E’s Smart Meters, these rates will provide an opportunity for customers to lower their bills while improving system reliability and reducing greenhouse gas emissions,” says the CPUC website.

Travis Grove of Sutter, California told the Appeal Democrat a different story, “They’re a business trying to make money. You can find better customer service at Sutter County Jail. It’s tough, but what can you do?” he said.

In November 2011, many of PG&E’s commercial and industrial customers will switch to new Peak Day Pricing. Under these dynamic pricing rates customers will pay different prices for electricity depending on the time of day. On peak load days, prices for electricity used between 2 p.m. and 6 p.m. go up—way up!  But PG&E promises to notify C&I customers affected about expected peak day events one day in advance hoping customers will curtail demand to reduce their costs.

Residential customers have the option to participate in PG&E’s Smart Rate program, designed to encourage customers to reduce their electricity usage at during peak periods and it does have built-in bill spike protection program for the first summer under the plan.  That should give you fair warning about what to expect later when full dynamic pricing is put into effect.  PG&E also has a Smart AC program to cycle off home air conditioning in response to signals from the utility on peak load days.  There is a $25 one-time payment to the customer for signing up.

Given the experience to date with smart meters it does not seem that even California is yet ready for dynamic pricing—and that is the big question.

Will regulators and politicians force customers to dynamic pricing?

Unless they do smart meters provide little consumer benefit.  But if dynamic pricing is imposed on residential customers the Bakersfield Effect could turn into a firestorm of protests after the first hot summer utility bill arrives in thousands of homes.

6 thoughts on “Is the Worst is Yet to Come for Smart Meters?

  • Hi Gary – PG&E better be testing a variety of messages to communicate to their customers why time of use pricing is “good” well before implementation.

  • Hi Gary, Thanks for your sharing your perspective. You probably know peak pricing is a form of ‘congestion pricing,’ the idea being to reduce congestion by increasing the cost of ‘being there’ so some will opt out and ‘be there’ later or earlier. A parallel is increasing a bridge toll during rush hour to avoid traffic jams. Jams lead people to cry out for another bridge to be built, and to cry again when they have to pay for that 2nd bridge by paying a higher toll whenever they cross. Average cost electricity pricing leads to the building of 2nd bridges & to making everyone pay for them even if they rarely cross during rush hour. Peak pricing reduces traffic jams & avoids 2nd bridges by raising the toll during rush hour. Using electricity we’re always ‘crossing’ that bridge, and peak pricing will keep the toll low most of the year & encourage us to find alternatives during heavy bridge traffic when tolls are much higher. Say, have you programmed your pool and tub filters to run during off-peak hours?

  • Good summary of the issue here. I wonder if the backlash will grow as people realize that they will now pay a price for energy that more closely reflects their actual usage. I tweeted this article on the @pulseenergy feed.

  • Agree time-of-day tariffs are needed to shift both industrial and residential demand, and both customer categories will holler when they are implemented. First-year “spike protection” programs are a good idea because they give customers time to adjust.

    But some customers cannot adjust: like many, I work from home and so need to run my A/C, computer, monitors, etc. during the day. Plus I open the fridge door from time to time or watch TV at lunch. I already run my dishwasher and other appliances at night. Tariffs need to address a broader range of lifestyles beyond today’s three categories: residential, commercial and industrial.

    Smart Meters will give the utilities the information that they need to build tailored energy plans that address the needs and conservation opportunities for every segment. Let’s hope they decide to use this information intelligently to provide higher levels of customer service, instead of just selling all of us down a demand-pricing river of higher electric bills.

  • Hey, just want you all to know that after carefully reviewing and adding up my charges, I realized that PG&E is taking a daily total of my usage! Instead of the montly total we used to get we now are charged per day. My husband was finally able to get the employee of PG&E to admit it……..he did not want to. We asked when was a notice of the changes sent out to customers and he said he was not sure. We asked for a copy of it and he was not able to give it to us. He clalims it is on the website, but was still unable to find it. Do you realize what this means? We are all charged more on our bill. We totaled our bill for the Kwh monthy and came out less. We totaled the bill by the daily charge and it was more. So, how many out there already know this and if so, when do you become aware of it.

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