As a former California Public Utilities Commissioner (1999-2004), I would like to offer a few thoughts about smart meters.
“Smart” meters are devices that can remotely report electricity and gas usage readings as often as hourly to utilities without the need for human meter readers. The justifications offered by proponents are twofold. First, it is claimed that utilities can control electricity usage by sharply raising rates during hours of high system demand, thus discouraging consumption and reducing the need for additional generation capacity. Second, customers can supposedly benefit by moving their usage to hours when demand and prices are low.
While most residential customers are skeptical, this analysis has tremendous appeal to energy producers and market-oriented economists and regulators, the same folks who brought us the electrical deregulation catastrophe in 2000-2001. What is almost never part of the public discussion is the real motivation of smart meter proponents.
Utilities make their money in two ways: they are reimbursed through rates for their reasonably-incurred costs of providing service, such as paying their workers; and they are fully repaid plus a “reasonable” rate of return for long-term capital investments in their systems (“rate base”). Only the second adds to corporate profit, the bottom line. Replacing functioning existing meters, which have already been partially or fully amortized and have a low rate base, with expensive new ones provides a guaranteed stream of profits for decades to come.
For example, Southern California Gas Company’s new meters, recently approved by the PUC, add over $1 billion to rate base and will bring the shareholders hundreds of millions of dollars in profits over the next 26 years, even if they don’t work as advertised or become technologically obsolete during that time. As 1000 union jobs are eliminated in Southern California, customers will lose the safety-related services provided by human meter readers, even though there is no net cost savings from the new technology.
Most residential and small business consumers cannot afford the expensive systems that would enable them to automatically control their consumption in response to hourly price changes. The winners here will be large industrial and commercial consumers and perhaps some very wealthy homeowners. Even if non-time-of-use rates are maintained as an option for small consumers, they will go up as large consumers escape regulation that apportions utility system costs among classes of consumers. In fact, this outcome has always been a central goal of deregulation.
Despite opposition from consumer advocates, Schwarzenegger’s PUC has enthusiastically rubber-stamped every smart meter project that has come before it. Whoever is elected Governor in November will be able immediately to appoint a majority of this powerful commission. Progressives need to make sure that the issue becomes part of the election debate.
[Full disclosure: I represent Utility Workers Union of America, Local 132 in its opposition to smart gas meters at the PUC; and I am President of the Board of The Utility Reform Network (TURN), which is leading the campaign to disclose the failings of PG&E’s smart meters. I am also the Democratic candidate in the 65th Assembly District.]