President Barack Obama announced today that he is pushing out $3.4 billion in stimulus spending to fund the development and construction of the much vaunted "smart grid." Significant portions of the funding will go toward subsidizing so-called smart electrical meters for large utilities. Utilities in Florida and Maryland are set to get multi-hundred million dollar grants to underwrite smart meters and other infrastructure upgrades.

But a quick read of the stimulus list implies that the government will inadvertently penalize some utilities that have already moved quickly to build smart meter programs. The biggest loser of all? California. Big utilities in the Golden State got more or less shut of funding awards from Washington D.C. on this round, according to blog Earth2Tech.
The message this skewed award decision sends is stark. California and its utilities have traditionally been in the forefront of energy conservation. The Golden State ranks fourth in the country in per person energy consumption. Among larger states with populations of over 5 million, California ranks second, behind only New York (which benefits from the unfair advantage of New York City, the most energy efficient city in the U.S.).

California also has among the most progressive green energy policy in the country, mandating that 20 percent of power used by the state come from renewable sources by 2020. In preparation for that big push, California's large utilities, Southern California Edison (EIX) and Pacific Gas & Electric (PGC), had already launched fairly aggressive smart meter initiatives. Renewable energy on the grid can mean more variability in how much and when power hits the grid (when the wind blows, when the sun shines). So smart meters that make it easier to control consumption and eliminate potential brownout situations are valuable. But one can only imagine the executives at SCE and PGE, upon watching this latest round of stimulus awards, were smarting for having moved to quickly and aggressively to go green.

The stimulus decision is puzzling in other ways. California is a huge electoral player and was a big part of why Obama won the 2008 election. Shorting the cash-strapped Golden State on much need green energy stimulus funding is an odd policy path to embrace. Equally puzzling, California has abundant potential renewal energy resources including solar, geothermal, and wind power. Letting utilities build out smart meters would make it easier for them to bring on even more green power. But shorting them means that California's utilities will need to move more slowly to absorb green power that could prove an infrastructural headache due to its variability. In other words, you don't need Wall Street to create a moral hazard with government subsidies that encourage utilities towards bad behavior and a handout from Uncle Sam.

Alex Salkever is Senior Writer at AOL Daily Finance covering technology and greentech. Follow him on twitter @alexsalkever, read his articles, or email him at alex@dailyfinance.com.

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