Analysis

PG&E’s Muscle Not Enough to Lift Prop 16 in the Face of Anti-Smart-Grid Consumer Sentiment

Jun 29, 2010

By Matthew Feinstein

California voters rejected Proposition 16, which would have strengthened the position of utility giant Pacific Gas & Electric (PG&E), by a five-point margin despite a $46.1 million support effort from the utility. The measure would have instituted a rule requiring that each public agency looking to enter the power retail business gain approval from two-thirds of the electorate in a new referendum. As a result, passage would have hindered the formation of municipal utilities and Community Choice Aggregators (CCAs), which are community-wide clean energy districts. Both municipal utilities and CCAs allow local cities and governments to acquire and sell power to residents, as well as construct government-funded electricity-generation facilities, as competition to private utilities such as PG&E.

Despite the utility's backing of the bill, counties in which PG&E provides power largely rejected it. Customers are widely dissatisfied with higher bills resulting from PG&E’s new smart meter technology, which provides more accurate measurement of energy usage than traditional meters, and was developed with government funding from the 2009 economic Recovery Act. In rejecting the measure, voters showed that even in a state as environmentally conscious as California, consumer dissatisfaction with high costs wins out over the desire for subsidized Smart Grid technology.

Although smart meters are not popular enough with the end user to want to subsidize the technology, utilities will continue to push other Smart Grid technologies that reduce the frequency of costly blackouts and expensive maintenance programs. Companies that provide these services, including both giant conglomerates like ABB and Siemens as well as startups like Current Group, will continue to see success. On the other hand, smart metering companies like Itronand Landis+Gyrhave to continue to rely on government largesse, as the benefits to the U.S. public are perceived to be too small to make up for higher electricity rates.

Matthew Feinstein is a research associate for Lux Research, which provides strategic advice and on-going intelligence for emerging technologies. Leaders in business, finance and government rely on Lux Research to help them make informed strategic decisions. Through their unique research approach focused on primary research and their extensive global network, they deliver insight, connections and competitive advantage to their clients. For more information, visit the Lux Research site or contact Carole Jacques to become a Lux Research client.

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Current Comments (6)

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Another Consumer Motivation on Prop 16

Dear Matthew,

I heard that one of the key reasons people rejected Prop 16 is that they recognized that PG&E was trying to make it more difficult for municipalities to form their own utility and pull out of PG&E. There are several municipalities in PG&E territory that have been working on this path for a couple years and the number is growing. The voters, who are dissatisfied with PG&E, saw this tactic (Prop 16) as preservation of the monopoly, and rejected it. This was a very different motivation than issues with smart meters in Bakersfield.

Did you see this rejection of monopoly protection in your analysis of the voting results on Prop 16?

Steven W Pullins - 06/30/2010 - 08:09

Prop 16 in CA

I'd be curious if there is some evidence to support the conclusion that the voters rejected Prop 16 in CA because of the cost of implementing the smart grid. Being a voter in that election, I never heard that reason per se being given to reject the proposal. It might have been embedded in local lore that publicly owned utilities inherently have lower rates, and passage of this proposition would have made it much harder for new publicly owned utilities to be formed or for existing ones to expand, but that debate on the relative cost of the private vs public utility has been around long before the smart grid became a public media icon. And some publicly owned utilities are investing in elctronic digital meters as well. Based on what I heard in conversations during the election, the main reason for rejecting Prop 16 was just because it was a proposition, which has been the fate of most propositions in CA. The second most common reason I heard was that some (more sophisticated?) voters rejected the concept that a large corporation could spend enough money to change the state constitution. A third reason is the one Steve Pullins cited. My personal quess is the first reason was the compelling one. I can't prove it, but I suspect that voters took the path of least resistance by voting against it. - Merwin Brown

Merwin Brown - 06/30/2010 - 09:46

A no-brainer

Where I live in San Diego, the Union-Tribune published a guest editorial by a local academic who rightly ridiculed prop 16 for what it was -- a naked power grab. He called it one of the most egregious abuses of the referendum process ever put forth.

I think this failed referendum will not be forgotten, but will be trotted out to remind ourselves how cynical, greedy and arrogant the investor owned utilities are.

This PG&E ploy just confirms what we already believed. The prop scheme of 2010 will be added to other memories, e.g. of the rigged 2000 'energy crisis' which cost us 48 billion (several thousand dollars per household), Enron, the phony climate change and greenhouse gases scam, etc and now the idiotic 'smart' meter 'deployment'.

David Engle - 06/30/2010 - 10:00

CA Prop 16

The failure of Prop 16 had little to do with smart grid technology and everything to do with: PG&E's high cost

The perception that the 2/3 requirement for approval of local government power agencies was not a reasonable reasonable requirement. If the arrogant mangers of PG&E had talked to anyone outside their own circle and proposed a simple majority vote, they would have won. In my opinion.

James Skeen - 06/30/2010 - 10:31

No on Prop 16 victory

As a member of the No on Prop 16 Steering Committee, ALL of the issues mentioned are reasons for the defeat of Prop 16. We believe that the dominant issue was the blatant mega corporate attempt to secure their monopoly and that of the other IOU's in CA. Voters saw through their rapacious intentions combined with untruthful saturation advertising and outrageous customer paid for campign treasury. That was their undoing. Over 70 newspapers and the blogosphere combined with the endorsement of countless statewide organizationns and elected officials (including the President of the CPUC) contributed immensely. The other issues mentioned played a role, but one not mentionned is the strong commitment of the public for greater development and availability of renewable energy products and resources at the local level-more than is provided by IOU's. And in other words it may have come down to a simple equation: do you trust monoply big corporations or local government? Cynthia Wooten

Cynthia Wooten - 06/30/2010 - 11:38

Prop 16 and the Smart Grid

Cynthia Wooten hits the nail on the head regarding the defeat of Prop 16. Consumers do not want monopolies restricting their choices in the energy sector any longer. They want and now demand competition. This desire has no relationship to consumers' willingness to embrace and pay for smart grid technology. In fact quite the opposite is true. Once consumers are given the choice and the information that allows them to understand that smart grid technology will enable greater development and availability of renewable energy products and resources at both the regional and the local level they will demand it and seek it out from competitive providers. We just need to enable consumers to do so with appropriate regulatory structures and adequate information. PG&E failed consumers on all counts.

Jon Wellinghoff - 07/03/2010 - 06:57

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