Peco says its initial investigation of the malfunctioning meters in the Philadelphia area indicated that "preexisting" problems with the wiring in houses caused the meters to overheat.
But an engineer who worked for the manufacturer of the meters, Sensus Metering Systems Inc., filed lawsuits in Alabama in 2009 and 2010 alleging that the meters were "seriously defective and posed a substantial fire hazard."
His lawsuits said Sensus terminated him in 2009 after he raised safety issues, including quoting an e-mail from a company analyst that said some meter circuit boards were "burned to a crisp."
The engineer, Don Baker, 54, of Birmingham, settled a civil suit in state court earlier this year and is bound by a confidentiality agreement.
Last year, Baker dropped his 2010 federal case after the U.S. government, which had funded the smart-meter installation program in Alabama and whose intervention Baker had sought, declined to intercede.
Linda Palmer, a spokeswoman for Sensus, a private company based in Raleigh, N.C., said in an e-mail Tuesday that the federal lawsuit was "without merit."
Sensus has installed 10 million meters nationwide, Palmer said, and its "first priority" is the safety of its employees and customers.
She said the company had investigated reported failures of its meters and "in all cases, it was determined that the meters were not the cause of the problem."
But Baker's whistleblower suit includes an internal 2009 e-mail from the director of the company's advanced metering projects, who acknowledged "a known issue" with some of its model 2S iCon A meters.
The supervisor, Joel C. Denney, admonished the staff to cease spreading "rumors" about quality issues. "Stop the e-mail traffic around these issues," he wrote.
Palmer said the "known issue" referred to "a data display warranty issue" that was specific to one lot of meters and was resolved in 2009.
Questions about the safety of smart meters are likely to complicate a program that is a key component to upgrading the region's electrical-distribution system.
Pennsylvania is requiring all large electric utilities to install the meters, which allow for two-way communication with customers, setting the stage for hourly pricing next year. The meters also improve utilities' ability to detect and manage outages, as well as to turn on or shut off customers remotely.
Though regulators say smart meters are safe and the data they collect is secure, some critics have raised health concerns about the radio waves emitted by the wireless devices, and some privacy advocates fear that detailed consumption data could be misused.
Some states are allowing customers to opt out of having smart meters installed. Pennsylvania requires all customers to have the devices.
Ten years ago, Peco installed wireless meters that can be read remotely for all its 1.6 million customers.
But this year, the utility began installing 600,000 new-generation meters as part of a $650 million program to build a "smart grid." The effort is supported by a $200 million U.S. Department of Energy grant.
Cathy Engel Menendez, Peco's spokeswoman, said the utility's plans called for Sensus to supply 420,000 of the first 600,000 meters.
Peco is installing a later generation of Sensus meters than those that were cited in the lawsuit, she said.
Indeed, the number of devices Peco says have overheated is relatively small - one out of every 12,400 meters.
Baker, who was a project manager for Alabama Power, said in his lawsuit that hundreds of meters showed signs of overheating in 2009.
"In Alabama, about one out of 2,000 installed meters are failing and show visible fire/burn damage," Baker wrote in an e-mail to a Sensus supervisor that is filed with the Circuit Court of Jefferson County, Ala. "Someone is going to get injured or killed because of these meters."
Engel Menendez said that Peco, in its research on Sensus meters, had spoken with several utilities including Alabama Power Co., which is a subsidiary of Southern Co.
"Any such issues were not presented to us in those discussions," she said.
Peco suspended its smart-meter installation program on Aug. 15, after a fire burned an unoccupied Bucks County home. Since then, the utility has replaced more than 15,000 of the Sensus meters with devices supplied by its other vendor, L&G, to test if the device itself plays a role in the malfunctions, said Engel Menendez.
This week, Peco began wirelessly changing the software on the Sensus meters so the equipment will shut down automatically and produce an alarm if it overheats.
The Pennsylvania PUC on Friday sent Peco a letter with 17 questions regarding its "advanced metering infrastructure" program, including failure rates of the smart meters, training issues, and Peco's research on manufacturers.
Peco has 10 days to respond.
Customers with concerns about their smart meters can call Peco at 855-741-9011 and the utility will dispatch a technician to inspect them, Engel Menendez said.
Contact Andrew Maykuth at 215-854-2947, @Maykuth on Twitter or email@example.com