The decision backfired when the Public Utility Commission required meters to have functions that Oncor's digital meters did not. Oncor's meters weren't smart enough.
Now Oncor wants customers to pay $93 million for meters most people never received. This week, two administrative law judges said in an advisory ruling that the company is entitled to only part of that because its meter purchases were "imprudent."
The meter issue is part of a pending Oncor rate case. At its heart is the thorny question of whether customers should pay for a regulated utility's miscalculations.
"These costs should be borne by Oncor, not by ratepayers," PUC staff attorney Patrick Peters III asserted in a rate case filing.
Oncor argues that because the meter upgrade was meant to help reduce their electric bills, the customers should bear the equipment cost.
"If we didn't feel as though they were a prudent investment," company spokesman Chris Schein said, "we would not have sought recovery."
If the PUC approves Oncor's entire $254 million rate hike request, including the meters, the average customer's bill would rise by $5 per month.
A decision is expected later this year.
Any increase would mark the second time this year that Oncor customers had been told to pay for advanced meters.
In January, the company began levying a $2.21 monthly surcharge to pay for new meters that comply with state regulations.
The surcharge, which will be collected for 11 years, applies whether or not Oncor customers have received a new meter. The rollout won't be completed for three years.
The proposal to recover costs for the obsolete meters is a focal point for opponents of the rate hike–among them consumer groups, a coalition of cities and the PUC legal staff.
The two administrative judges hearing the rate case concluded Tuesday that Oncor should have stopped buying meters after it learned the PUC would set minimum functions for the devices.
"A prudent manager at that time would have ceased ordering additional automated meters," judges Henry Card and Catherine Egan wrote.
The administrative judges recommended to PUC commissioners that Oncor be permitted to recover $54 million for 365,000 meters it ordered before December 2005, when the PUC announced it was going to set functions.
The three commissioners may accept, reject or modify the recommendations.
Company spokesman Schein said critics of the meter request are being unfair. "It's very easy to Monday-morning quarterback and say this is a bad business decision," Schein said.
"If we had not moved forward," he said, "and another state had deployed these advanced meters and their consumers were reaping the benefits of it because we had sat on our hands, then they would have said [Oncor] made a bad decision to sit on their hands."
Thomas Brocato, attorney for a coalition of 145 cities served by Oncor, said the company's decision on the meters was clearly unwise.
"They knew that they were at risk if their meters did not comply with the functionality requirement," Brocato said. "Nevertheless, they pursued that course of action."
Customers should not have to pay a cent for the meters, he said.
Oncor, a regulated subsidiary of Energy Future Holdings, owns and operates power lines. The company is guaranteed a profit; its monthly charge is part of a customer's overall electricity bill.
The company's meter initiative began amid passage of state and federal laws that urged electric utilities to develop smart networks to boost energy efficiency, Schein said.
Should the PUC reject Oncor's cost-recovery request for the obsolete meters, Schein said, it would send a chilling signal about pursuing new technologies.
"You don't want to discourage utilities from moving forward on investing on behalf of the consumers," he said.
Digital meters that offer remote reading and more precise monitoring have been promoted as a successor to conventional analog meters for decades.
Consumer groups have expressed doubts that the savings for most electricity users will be nearly as great as advocates for smart meters have suggested.
While there have been pilot projects in Texas and around the country, few utility companies have been as ambitious as Oncor in rolling out the technology.
Oncor, then known as TXU Electric Delivery, made its first purchase of automated meters in 2004. It followed that purchase in May 2005 with 264,000 meters.
The same month, the Texas Legislature passed a bill to allow electric delivery firms like Oncor to charge customers for the cost of providing advanced meters.
In July 2005, the PUC began implementing rules to set minimum operating standards for advanced meters. TXU Electric participated.
Total purchases of new meters rose to 365,000 by November 2005.
That was the point, the two administrative law judges ruled this week, where Oncor should have stopped.
Instead, TXU Electric bought 400,000 additional meters compatible with carrying broadband Internet service over power lines. The venture would have created the largest broadband-over-power-line system in the country.
The deal died in 2008, less than three years after it began.
"We decided to go in a different direction," Schein said.
In all, Oncor ordered 898,000 meters before the PUC published draft standards in October 2006. Orders for 271,000 of those meters were canceled. About 590,000 of the remaining meters were actually installed. All will be removed.
The installations covered less than 20 percent of the 3.4 million meters in Oncor's 91-county service area, which includes Dallas-Fort Worth.
The advanced meter regulation adopted by the PUC in 2007, which made the Oncor meters obsolete, included the requirement for two-way communications. That would allow the company remote, on-demand access to meter readings.
It also required the ability to connect and disconnect electrical service remotely, and monitor use in 15-minute intervals.
Oncor's older generation of smart meters possessed none of those functions.
The company did not see the PUC's decision coming, Schein said.
"We had no reason to believe that what was the latest technology available would be essentially ruled obsolete by a ruling two years later, three years later," he said. "We never would have done it."
The company decided a shift in strategy was needed.
In May 2008, the company announced that it was pursuing a new $690 million plan to install a wireless type of advanced meter that complied with state rules.
The company filed a request with the PUC to pay for the new meters with a surcharge to customers. At the same time, Oncor notified the commission that it wanted a recovery cost for the older advanced meters as part of its $254 million rate hike request.
The PUC legal staff has called for a rate cut. It has argued that Oncor's initial meter investment was premature. The company deserves to recover $39 million, or less than half of what it has requested, staff attorney Peters has written.
"The record demonstrates that Oncor chose to make a risky business decision and gamble on the outcome of the advanced metering rule," Peters wrote.
By granting Oncor's meter recovery request, critics contend, the PUC would force Oncor customers to pay twice for new meters they didn't request at a time when Texas ratepayers already incur some of the highest usage charges in the country.
Joel Morgan, a disabled auto parts salesman from Rockwall, is one of the 3 million Oncor customers slated to get one of the new advanced meters.
He is 71 and suffering from heart disease. He and his wife, Martha, live on a fixed income of less than $2,000 per month. "Our heads are barely above water," he said.
The only problem Morgan recalls having with his electricity meter was when his was damaged by a natural gas explosion two years ago. He got a new meter then and doesn't see the need for another one, particularly if he has to pay for it.
When he learned of Oncor's proposal to have customers pay for new meters, he wrote the PUC to complain that the expense should be borne by the company.
"Please keep us in mind when these BIG BOYS with the DEEP POCKETS come to you asking for permission to stick it to us again and again and again," he wrote.
The letter was signed "Two Struggling Citizens."
