SAN FRANCISCO -- California's nation-leading attempts to install a smart grid are being attacked on the front and back ends by consumer-protection advocates who say they are not technically or economically sound.

A lawsuit from customers saying their rates have shot up 200 percent since the smart meters were installed, as well as a new California law preventing dynamic pricing, is evidence of weakened consumer confidence in a policy hailed by utilities and lawmakers as a major solution to climate change and tight energy supplies.

The California Public Utilities Commission has been exploring time-based pricing since 2003. The commission sees it as a way to stave off another energy crisis like the one California suffered in 2001, when deregulation and low energy prices led to blackouts and price spikes of up to $1,400 per megawatt-hour.

CPUC has tinkered with at least three different electricity pricing mechanisms over the years: time of use, which has constant rates for on- and off-peak hours; fixed critical peak pricing, which includes a higher "critical" rate on the 15 hottest days of the summer; and variable critical peak pricing, which can offer rates on the hottest days that can change minute-to-minute. Last year, the agency required utility PG&E to introduce some kind of dynamic pricing options for residential customers by 2011.

Utilities see the installation of smart meters as a key step on the way to requiring consumers to pay different rates at different times. They help customers see exactly how much and when they are using energy, and they can automate a response to price incentives by adjusting their consumption.

The class-action lawsuit, filed Oct. 16 in Kern County Superior Court, alleges that PG&E's smart meters are measuring customers' energy use inaccurately, resulting in bill increases of as much as 300 percent.

Overheated consumers in Bakersfield

Attorney Michael Kelly said the lawsuit has two defendants so far, but he anticipates more. "We've got hundreds and hundreds of people that have contacted our office, and the theme that runs through all their allegations is they've done things to reduce their energy consumption, put in more energy-efficient air conditioners, tried not to use them as much, and their bills still went up after the meters were installed," he said.

A consumer advocate group, the Utility Reform Network, or TURN, is asking PG&E to stop installing smart meters until the CPUC comes to a conclusion. "Regardless of who is right on this, there is a huge crisis of consumer confidence on this," said TURN Executive Director Mark Toney, citing hearings in Bakersfield and Fresno that drew upward of 200 people each.

Toney also objected to PG&E's use of $2.2 billion in ratepayer money to pay for the smart meters, saying the money would be better used for energy efficiency measures. "The problem is there's this obsession with high-cost, high-tech solutions, when low-cost and low-tech are being overlooked, because there's no money in them," he said. "They're making a killing on this. They won't make money off of doing an education campaign on power strips."

PG&E says the increase is the natural result of state-approved rate hikes and warmer weather; Bakersfield, where the suit originated, had 17 days in July over 100 degrees, compared to six days last year.

PG&E spokesman Denny Boyles said the utility has temporarily stopped installing meters in Bakersfield but that the overall pace of installations would proceed at the rate of 12,000-15,000 per day. CPUC authorized it in 2006 to upgrade all of its 5 million electric meters and 4 million gas meters by 2011. "We want the customers comfortable with it, but at the same time, we're updating our equipment," he said. "We have had people refuse, and then we send a series of letters and go talk to them. We haven't shut anyone off by refusing access to their meter; we could, but we've chosen not to."

It's the weather, not the meter, says commission

"My concern is customers who are thinking it's definitely the meter are not going to look at their usage and see that rates have gone up and their usage might have gone up," Boyles said. "If they think it's just the meter, next summer, their bills are going to be the same, and they won't have taken advantage of the technology."

The CPUC is taking a cautious approach to the lawsuit. "Complaints from consumers are not taken lightly, and the CPUC is working diligently to determine if there is a problem with meters in Bakersfield. The CPUC will take all necessary and appropriate actions if a problem is found," said CPUC President Michael Peevey last month. He also announced an internal task force to follow smart meter deployment.

TURN is behind another attempt to derail time-based pricing. Gov. Arnold Schwarzenegger (R) signed a law last month, S.B. 695, that prohibits the CPUC from implementing real-time pricing until 2013 at the earliest, and forbids mandatory real-time pricing until 2020.

Toney said the entire concept of dynamic pricing is misguided, as utilities typically buy only a small percentage of their electricity on the spot market. Most purchases are made years in advance, at set prices, so charging ratepayers different amounts all the time doesn't reflect reality, he said.

"The concept that you'd change ratepayers' spot price based on some speculators' trading is absolutely absurd," he said.

Gregg Fishman, a spokesman for the California Independent System Operator, said that utilities typically buy less than 10 percent of their electricity in response to real-time demand. CPUC has resource adequacy laws that require utilities to project and meet demand months and years in advance, limiting the amount of electricity they would need to buy each day, he said.