Pacific Gas and Electric Co. (PG&E) was hit by $158 million in added operations/maintenance costs in the third quarter this year, and it is changing the technology for its advanced meter replacement that will increase the costs of that five-year effort to replace more than 10 million electric and natural gas meters. These issues gained a lot of attention from financial analysts last Thursday during a conference call with PG&E Corp.’s senior management, highlighting decreased earnings for the third quarter.

PG&E reported net income for the third quarter of $278 million, or 77 cents/share, compared with $393 million, or $1.09/share, for the same period last year.

“Our ongoing challenge is to continuously improve service to our customers amid the pressure of rising costs, which has been and continues to be the focus of our business transformation efforts,” said PG&E CEO Peter Darbee as part of the third quarter results announcement in which he declared the utility was “on track” to meet earnings guidelines. Darbee also touted PG&E’s efforts to boost renewable energy use while lowering overall operating costs as a means of a utility-wide “transformation effort,” the centerpiece of which is the switch to advanced meters.

Some 240,000 meters will have been changed out by the end of this year, and PG&E will continue on its current pace as it pilot tests a new generation technology that should kick in a year later. The bulk of the meters — more than 9 million — will end up having the newer, two-way communications capability along with allowing for decentralized meter reading without the use of meter readers in the field.

“The important point to recognize here is that as we look at our [five-year] roll-out, we are going to take the existing technology and keep it confined to certain geographical areas [Central Valley of California] and keep our maintenance costs down, so we can still realize the benefits of scale of the first-generation technology, gaining the savings from not needing meter readers, and capturing the reliability savings,” said Bill Morrow, CEO of the utility.

“To go beyond that would not hit the customers before 2009 and would be more of an enhanced demand-response technology, an in-home appliances and smart thermostat capability. It is a platform for which we have yet to fully think about the added potential it is going to give us.” PG&E now will be adding a two-way communications capability with its advanced meters that will be more like what the state’s other major utilities are planning to install.

Regarding the higher operating costs, PG&E’s CFO Christopher Johns said the causes for the increases go well beyond inflation. “We, like a lot of other utilities and companies, are seeing rising material costs, whether it is copper, cement or the other essential materials that go into the capital projects. Some of the contractor costs we’re incurring are higher. External contractor costs and labor costs have gone up quite a bit, along with permitting prices. It is a myriad of different things.”

In contrast, on a separate third quarter earnings call for Sempra Energy, there utility senior officials said they are not experiencing “anything out of the ordinary” in terms of operating costs at San Diego Gas and Electric Co. and Southern California Gas Co.

©Copyright 2007Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.