Business

Saturday, Feb 27 2010 12:00 PM

Bakersfield's SmartMeter trouble worries industry

BY JOHN COX, Californian staff writer jcox@bakersfield.com

Kern's SmartMeter backlash has raised red flags around the world and sparked debate within the electric utility industry over whether what some call "The Bakersfield Problem" is merely a public relations warning -- or worse, a significant obstacle to efforts to modernize the U.S. power grid.

The question asked locally by customers of Pacific Gas and Electric Co. also intrigues utility executives, regulators and consumer advocates: Are the remote meters to blame for spiking bills in Bakersfield last summer, or did a rollout of new technology raise suspicions only because it coincided with steep rate hikes and hot weather?

As the industry awaits a state-sponsored inquiry into the matter, one group based in Washington, D.C., plans to produce its own study to head off a wave of skepticism that started here and which some say threatens to slow the Obama administration's $8 billion "smart grid" initiative.

"This is a serious threat. It cannot be overstated," said Ahmad Faruqui, an economist and consultant on energy pricing and technology issues.

The industry watches

Nowhere else have smart meters created such an uproar, though some say Bakersfield's level of skepticism has reached the Bay Area and could spread farther. Outside utilities are monitoring the situation, and in some cases, redoubling their public education and outreach efforts in hopes of a smoother rollout than the one PG&E began here in 2006.

Though utilities around the country cite positive lessons learned in Bakersfield, and even PG&E said it has sharpened its customer focus as a result of the trouble, perhaps the only segment that truly welcomed the customer uproar is that of consumer advocates. To them, it reinforces assertions that this technology needs to be examined more closely and introduced with greater sensitivity to customers.

"Here's a concrete example of what could go wrong, and not just a theoretical concern about what might happen," Charles Acquard, executive director of the National Association of State Utility Consumer Advocates, said of PG&E's Bakersfield turmoil.

But beyond the need for better customer outreach, there is little consensus on what PG&E might have done to avert the trouble here. Many in the industry point to bad timing -- a "perfect storm" -- and say that the best the company could have done is warn customers last summer that their upcoming bills would be high.

Bakersfield rollout

PG&E first introduced its SmartMeters in Bakersfield in 2006. The idea was that these devices would be the forerunners of a more efficient power grid that would empower consumers with detailed information about how much energy they use and when.

But Bakersfield's first generation of meters had limited signal capacity, and so last year the company began installing more advanced SmartMeters and switching out older ones, raising the cost to ratepayers from $1.5 billion statewide to $2.2 billion.

Earlier that year, a rate increase that had caught little public attention was approved by the state Public Utilities Commission. By law, that bypassed qualified, low-income customers and those who use the least power -- while boosting rates by as much as 23 percent for those at the highest levels of usage.

Then things heated up. According to PG&E, Bakersfield had 17 days with temperatures at or above 100 degrees in July, up from 6 days that hot a year before.

Customers soon were receiving bills double and triple what they had paid a year before. People at a loss to identify any change on their part said the cause had to be their new meter. State Sen. Dean Florez, D-Shafter, began pressuring PG&E and the commission to resolve customer complaints and do more to test for possible technological glitches within the system.

Word spreads

Meanwhile, reports were circulating around the industry that the meters -- which had gone over mostly without incident in Europe and other parts of the United States -- were under attack in Bakersfield.

Faruqui, who occasionally does consulting work for PG&E, was at a London conference in October when the Bakersfield situation was brought up. It came up again shortly afterward at a meeting he attended in Cairo. Since then he has received e-mails from Australia and Canada asking what happened here.

"It has been coming up at every meeting and conference I've gone to in the last several weeks," Faruqui said last week. "Nobody is convinced that they know what's happening, and there is this apprehension now that it was the meters that was the problem."

Travis Miller, a senior analyst who watches utilities for Chicago-based Morningstar, said the industry needs an explanation as to what caused the uproar in Bakersfield.

"There are questions about whether it was a one-off problem or whether it's something that was systemic across the whole smart meter industry," he said.

Two studies

That's the reason for a study about to be launched by the Institute for Electric Efficiency, the Washington-based nonprofit arm of the industry trade group Edison Electric Institute. Efficiency institute executive director Lisa Wood said regulators across the country are discussing the Bakersfield situation.

Although her position is that local high bills resulted from an unfortunate confluence of factors, she said there needs to be empirical evidence.

"I think what we have now is a lot of anecdotes, and we have stories. But we don't have facts," she said, adding that the group's study will take about a month to complete.

The state commission is conducting interviews to determine who should perform its study of whether PG&E's SmartMeters are billing customers correctly. A commission spokesman said that evaluation would likely begin within weeks and take about six months to complete.

How serious?

A looming fear is what effect the Bakersfield backlash will have on development of the national "smart grid." That's the ongoing overhaul of the nation's electricity infrastructure, involving interaction among utilities, transmission systems, alternative energy plants, businesses and -- at the consumer level -- smart meters.

President Obama has made continued construction of the smart grid part of his economic stimulus plan, calling in October for the federal government to invest $4.5 billion into the system and asking private sources to put in another $3.5 billion.

Data compiled by the Edison Electric Institute indicate that the nation's electric utilities plan to install almost 60 million smart meters, representing nearly half of U.S. households, by 2019.

The industry is divided over how much of a threat Bakersfield poses to those plans.

A spokesman for North Carolina-based Duke Energy, an electric utility that operates in five states, wrote off Bakersfield's wider impact as "more hype than reality."

"Every technology has had its doubters," spokesman Dave Scanzoni said.

Faruqui and Miller say the national implications are more serious, if only because consumer groups have used Kern's experience as ammunition against the rapid rollout of SmartMeters.

Even Steve Sunderhauf, a manager within the regulatory division of Pepco Holdings Inc., a utility with operations in four East Coast jurisdictions, acknowledged that the existing perception of technical trouble in Bakersfield has caused public and regulatory "angst."

"I think what it'll do is it'll cause additional questions by regulatory commissions and internal questions by organizations as to whether we're doing it the right way," he said.

"The last thing we'd like to see is Bakersfield-like conditions occurring elsewhere."

Best practices

Utilities say they hope to avoid that scenario by emphasizing strong communication with customers, not only about why they are getting smart meters, but notifying them ahead of time about additional costs from rate increases and extreme weather conditions.

Ken Devore, a smart grid program director at one of PG&E's neighboring utilities in California, Southern California Edison, said his company has carefully monitored what happens in Bakersfield. As a result, he said, SCE has re-evaluated its customer outreach program, making sure to emphasize things like the benefits of shifting times of power usage on hot days.

"You go back and you revisit your plan" based on Bakersfield's SmartMeter experience, Devore said. "You revisit your assumptions."

Pepco's Sunderhauf said Kern's experience has taught utilities to take very skeptical customers more seriously "so they don't kind of, you know, get blown out of proportion."

PG&E, for its part, has admitted to doing too little to prepare customers for the meter installations and the high bills that followed.

The utility's media relations director, Beth Foley, said PG&E now is happy to share with the industry its lessons in customer service.

Not that the company has mastered the art yet, she said.

"I expect as we go through this journey that we will further strengthen how we provide that support to our customers."

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