Marc Gunther

"You know how we find out when the power goes out somewhere in our system?" Peter Darbee asks me.

I don't know. Peter is the CEO of PG&E Corp., a $12.5-billion-a-year utility company in northern California. We had lunch recently at the National Press Club in Washington.

"We get a phone call," he says.

"You know what we do?" he asks.

Again, I'm stumped.

"Nothing," he replies.

Not until the utility company gets a second call is a truck dispatched, to determine the scope of the problem. This is, not to put too fine a point on it, dumb. In an era when people can talk to their TV sets or digital video recorders over the Internet from halfway around the world, to watch or record the latest episode of CSI or Heroes, it's crazy that a utility company can't get real-time information about what's happening on its own grid or, for that matter, how much electricity each of its customers is using, and when.

That kind of information has real value -- and not merely so that utilities can respond effectively to outages. A smart grid, which would include intelligent meters in every home, would save money for utilities and their customers by eliminating the need for people who drive around reading electric meters.

More fundamentally, a smart grid is the precondition for such common-sense energy-saving measures as time-of-day electric rates. That's a way of pricing power so that customers pay more when electricity costs more to generate (midsummer afternoons) and pay less when it costs less (the middle of the night).

Electricity costs more when power usage is high because that's when utilities bring on their least efficient generating plants. Time-of-day rates would drive simple conservation measures, like running washing machines late at night or early in the morning when demand wanes. If utilities can smooth out the peaks and valleys of demand for power, Darbee tells me, they will make more efficient use of their capital-intensive infrastructure and save money.

Most exciting of all, a smart grid would set the stage for a radical idea called VTG, or vehicle to grid. If plug-in electric vehicles, which are under development by General Motors and Toyota, can be connected to the grid, electricity, ideally generated by renewables, could replace gasoline as a transportation fuel.

Electric vehicles would run cleaner than gas-powered cars and reduce America's dependence on imported oil. Car owners could buy electricity from the grid when they need it and sell back to the grid when they don't, using their car batteries as storage. You can even imagine some car owners day-trading electrons, selling them during the afternoon when they are expensive, buying them at night when they are cheaper.

The VTG idea gets Darbee excited (although he is such a low-key guy you have to pay close attention to notice) because it would dramatically expand the market for electricity. "Plug-in hybrid cars are just a heck of an opportunity, " he says.

Darbee's not the most colourful CEO in the world, but he is thoughtful, intelligent and deeply concerned about the environment. He's both a conservative and a conservationist -- a longtime Republican and a leader of the US Climate Action Partnership or US-CAP, the alliance of big business and big green groups that is calling upon the federal government to enact mandatory controls on carbon. PG&E itself has awarded contracts to build about 1,000 megawatts of solar thermal power plants in the last year or two, and the company plans to commission another 1,000 megawatts before long. It's also looking at wave power, wind power, geothermal energy and cow power, which means turning agricultural waste into electrons. In other words, Darbee takes the climate change issue seriously.

As for the grid, PG&E is slowing making it smarter. It won permission in from California regulators to install 9 million smart meters to its customers, at an estimated cost of $1.6 billion. By the end of this year, it will have installed about 250,000 of the meters--not a whole lot, but it's a start.

Other companies, meanwhile, are trying to bring intelligence to the grid. A Washington, D.C., company called GridPoint has raised $88 million since its founding in 2003; its investors include Goldman Sachs and New Energy Associates. Peter Corsell, GridPoint's CEO, says the company wants to enable an "intelligent electric grid that integrates distributed clean technologies."

Another startup called V2Green, based in Seattle and run by an ex-Microsoft executive named David Kaplan, aims to develop software and hardware so utilities can manage the flow of electricity to and from electric plug-in cars. This space, as they say, is worth watching.

Marc Gunther is a senior writer at Fortune, a columnist for CNNMoney and maintains a blog at MarcGunther.com.

This article first appeared at Greenbiz.com