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Smart Meters, Dumb Backlash Smart Meters, Dumb Backlash

Smart Meters, Dumb Backlash

by Andrew Price

January 17, 2011

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Smart meters can save energy and money and prevent blackouts. So why did the residents of Bakersfield, California hate them so much?

As Barack Obama signed the $787 billion economic stimulus bill in February of 2009, he promised it would “place smart meters in homes to make our energy bills lower, make outages less likely, and make it easier to use clean energy.”

Sounds great, right? But in Bakersfield, California, one of the first American cities to get smart meters on a large scale, many residents hated them. Pacific Gas and Electric, California’s largest utility company, was sure its smart meters would be a hit. Instead, it faced an unexpected consumer backlash and a public-relations nightmare.

First, the basics: A smart meter is just a higher-tech version of your current home-electricity meter. What makes it “smart” is that it can measure a house’s energy use in real time (or near real time) and report back to the utility company remotely.

Because they can send information back to the utility company, smart meters make meter-reading trips to customers’ homes unnecessary. That saves utility companies money. But the big benefit of smart meters is “dynamic pricing.” By providing utility companies with near real-time information about how much energy people in a given area are using, smart meters allow them to set the price for electricity according to the current demand.

That means that the price of electricity might be higher in the middle of a hot summer afternoon, when lots of people are using air conditioners, and lower during a temperate spring night, when most appliances are off. With dynamic pricing, consumers know when to conserve, the utility company knows how much electricity to provide at any given time, and outages are much less likely because the variable price keeps supply and demand in balance.

After California’s energy crisis of 2000 and 2001, the promise that dynamic pricing could prevent blackouts was especially attractive. As Governor Gray Davis said at the time, raising prices during periods of peak demand would have “solved this problem in twenty minutes.”

From 2003 to 2005, California ran a pilot study with 2,500 customers, to make sure people actually responded to dynamic prices. The results were dramatic. With dynamic pricing, people dropped their peak demand by 13 percent. So in 2006, PG&E started handing out smart meters in Bakersfield, a fast-growing oil and agricultural city in the hot Central Valley. For two years, the rollout in Bakersfield went smoothly enough. Then, suddenly, late in the summer of 2009, customers started complaining. Their bills had spiked considerably, they said, and many were suspicious that the new smart meters might be at fault. This was surprising: The initial rollout didn’t involve dynamic pricing; it was just laying the groundwork by getting the smart meters into people’s homes.

In a blog for The Bakersfield Californian, a local columnist named Lois Henry began covering (and cultivating) the growing controversy. In posts with titles like “PG&E Can’t Tell a Straight Story with a Ruler,” she recounted reports of “hundreds” of complaints about bills that had “jumped 100, 200—even 400 percent year to year” and freely speculated about PG&E’s faulty technology and fishy motives. 

Around the same time, Dean Florez, a local state senator, demanded that PG&E halt the installation of smart meters. He began holding town-hall meetings—enthusiastically promoted by Henry—to hear complaints. An October meeting drew 200 angry citizens.

PG&E consistently denied that anything was wrong with the meters and blamed the high bills on the hot summer. But public suspicion grew, and as it did, so did the range of concerns. Were the smart meters safe? A smart meter had caused a small fire at a Bakersfield vacuum shop. Did they compromise privacy? It seemed PG&E would be able to see when people were home by looking at their hour-to-hour electricity use. Could smart meters cause cancer? 

Confusion reigned. By November, despite scant evidence that the smart meters themselves had caused any problems, PG&E faced a class-action lawsuit from Bakersfield residents.

Finally, the California Public Utilities Commission hired a Houston-based consulting firm, the Structure Group, to conduct an independent report on PG&E’s smart meters. Roughly a year after the controversy had erupted, the Structure Group reported that it “did not identify systemic issues in the measuring and billing of electric usage within PG&E’s SmartMeter system.” The meters were exonerated.

So why, two years after installation began, did this powerful customer backlash materialize, seemingly out of nowhere? As the Structure Group explained, it was a confluence of factors.

While the summer of 2009 wasn’t too much hotter, on average, than the year before, the month of July was. In July of 2009, Bakersfield had 17 days that topped 100 degrees, compared with just 6 days the year before. With so many hot days concentrated in a short time, many customers used much more energy in a single billing period than they had in the past.

But there was also an earlier change in how people were billed that had passed mostly unnoticed. In 2001, PG&E started charging for electricity based on a new “inverted tier rate” system. There were five tiers, and the more energy you used, the more you paid per unit. To use a car analogy, it works like this: If you pump five gallons of gas, you pay $2 per gallon. Pump 10 gallons? The price jumps to $3 per gallon. As Ahmad Faruqui, an energy economist with the Brattle Group, says, “it’s the opposite of Costco pricing.”

The point of these inverted tier rates was to encourage conservation among the heaviest electricity users. But during the especially hot July of 2009, many users were bumped into high-use tiers for the first time without knowing it. Not only were they using more electricity because of the heat, they were also paying more for each unit of electricity they used.

The problem was that people didn’t understand how much energy they were using or how they were being charged for it. PG&E didn’t do much to help. According to the Structure Group, when people called with complaints, PG&E’s customer-service agents gave them the runaround. 

Faruqui says the controversy in Bakersfield has damaged smart meters’ reputation, even though the technology itself wasn’t to blame. “I have appeared as a witness in Maryland and the District of Columbia and in Illinois and in other states to talk about the costs and benefits of these smart meters, and everybody there asks me, ‘What happened in Bakersfield and what can we do to prevent it?’”

That’s a shame, because smart meters are a critical component of America’s energy future. We need them to transform our current, shaky grid into one that can accommodate renewable energy and electric vehicles. We also need them so that we can charge prices for electricity that reflect its cost.

The controversy in Bakersfield won’t likely stop the rollout of smart meters across the country, but it has made it more difficult. In Maine, a woman has launched a campaign to stop the installation of smart meters after “reading about what was happening in other states.” 

Americans are often vigilant in defending themselves against insidious threats to privacy and rapacious corporations, but in Bakersfield it was a case of vigilance gone awry. In the absence of a quick response from PG&E to customer complaints, suspicion of the smart meters snowballed into paranoia.

“Bakersfield has become a metaphor,” Faruqui says. “Some people don’t even know there’s a town called Bakersfield, they just know there was something called the Bakersfield Problem.”

Learn more about smart meters here

illustration by Jared Schorr

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Smart Meters, Dumb Backlash