I serendipitously found this fascinating reply by Richard Farley, your friendly neighborhood meter reader, in a local email list giving a rare first-hand account of how the Advanced Metering Infrastructure works in California. This is real Internet of Things territory. So if it doesn't have a typical post structure that is why. He generously allowed it to be reposted with a few redactions. When you see “A Major US Utility”, please replace it with the most likely California power company.

Old mechanical meters had bearings that over time wore out and caused friction that threw off readings. That friction would cause the analog gauge to spin slower than it should, resulting in lower readings than actual usage -- hence "free power". It's like a clock falling behind over time as the gears wear down.

For A Major US Utility "estimated billing" happens when your meter, for whatever reason, was not able to be read. The algorithms approved by the CPUC and are almost always favorable to the consumer. A Major US Utility hates to have to do estimated billing because they almost always have to underestimate based on the algorithms and CPUC rules. Not 100% sure about this, but if they underestimate, they have to eat the cost. In the rare case they overestimate (i.e., you were on vacation during the missed period), you will get "trued up" in the next billing cycle.

A Major US Utility does not see your actual use in "real time". For those interested in the nuts and bolts, here's how A Major US Utility’s AMI system works (AMI is short for Advanced Metering Infrastructure):