Rod Valencia installs a smart meter for CenterPoint Energy on June 5, 2009, in Houston. (Pat Sullivan/AP)

This is the second article in a three-part series titled “Your Brain on Energy” for our new Energy and Environment coverage. The first article was “The next energy revolution won’t be in wind or solar. It will be in our brains.” The final article is “The best way to get conservatives to save energy is to stop the environmentalist preaching.” 

Five years ago came the promise: A great new way of saving money on your energy bills was on its way. An impressive new device called a “smart meter” —  a key component of the much touted “smart grid” —  would let consumers actually see how much power they’re using in their homes, thus empowering them to change their habits and slash their bills.

President Obama heralded the innovation: “Smart meters will allow you to actually monitor how much energy your family is using by the month, by the week, by the day, or even by the hour,” he said in 2009, as the federal government unleashed a $3.4 billion Smart Grid investment. “So coupled with other technologies, this is going to help you manage your electricity use and your budget at the same time.”

Lofty words —  but when it comes to changing people’s energy behavior, the smart meter revolution so far hasn’t been very revolutionary.

True, the meters are everywhere — utilities have installed 50 million at homes across the U.S., reaching 43 percent of homes overall, according to the Edison Foundation’s Institute for Electric Innovation. But that doesn’t mean consumers are easily accessing the available data or using it to change their energy use.

“Initially I had pretty high hopes,” says Carrie Armel, a research associate at the Precourt Energy Efficiency Center at Stanford University and a leader of a new wave of behavioral research on energy use. “I think the technology has a lot of potential. In retrospect, in that nobody has really leveraged the technology along with efficient behavioral techniques, I find it’s not surprising that we didn’t find rate savings.”

Smart meters are a nifty new technology that can record your electricity usage on at least an hourly basis (and sometimes much more frequently). But behavioral research suggests that technologies alone don’t necessarily change what we do, how we act, the habits we form. In the case of smart meters, what still seems missing in most cases are user interfaces that relay information from the meter in real time, and translate it into dollars and cents. Consumers also need much more access to an innovation called “smart pricing” — in other words, electricity prices that vary based on supply and demand — a key change the Smart Grid was designed to enable, and one that might make it a lot more worthwhile to pay attention to your energy behavior.

The upshot: Right now, smart meters aren’t waking Americans up and making them conscious of their energy use — because they aren’t being paired with what behavioral research shows us is needed for that to happen.

This is the story of why the smart meter revolution has, thus far, fallen short — and how we can better use one of the most pivotal innovations in the electricity sphere to save energy, cut greenhouse gas emissions and save a lot of money.

The problem of “rational inattentiveness”

To see why we’re not getting all we could out of smart meters, let’s first consider a major oddity — namely, that few of us have a clue how much electricity we’re using in our homes or what it costs (that is, until the bill arrives).

You know the drill: You use lots of appliances and devices in your home, from your flatscreen TV to your thermostat. You don’t really know how much electricity that consumes, or what your resulting bill is going to look like. But you probably know that a meter somewhere is tallying it all up in some alien unit called a kilowatt-hour or kWh.

The situation couldn’t be more different from another energy transaction we’re all familiar with —  going to the gas station. Here, as you pump, you see gallons bought and cost incurred in real time. This transparency is precisely why everybody has been so focused on plunging gas prices lately. We expect them to prompt a big consumer response, as the evidence suggests Americans are quite price sensitive when it comes to gasoline.


Why don’t we have anything like this for electricity? (Scott Olson/Getty Images)

Information about electricity costs might have a similar effect, if we received it in a convenient way. If consumers saw their meter running up and what it was costing in real time, they might be inclined to unplug a few appliances, adjust the thermostat, and so on (actions that, if widely adopted, could substantially reduce U.S. greenhouse gas emissions).

“There’s no doubt in my mind that having knowledge and information about how much you’re paying is a big factor in deciding how much to use,” says Ahmad Faruqui, a smart grid analyst and principal with the Brattle Group in San Francisco. “If you get a bill a month later, it doesn’t help.”

For now, though, consumers largely remain “rationally inattentive” to how much electricity they’re using at home, explains David Rapson, an economist at the University of California at Davis. The information is just too obscure and difficult to obtain — and there are a lot of other ways to spend your day, as well as seemingly easier ways to save money.

Show me the money

Smart meters —  50 million of them now, more to come —  have the potential to help fix this problem, by generating actionable information about people’s electricity use. So what’s missing? In short: Behaviorally savvy ways of connecting people with their smart meter data and making them more attentive to the cost of electricity.

Today, utilities typically provide consumers with a Web portal where they can see their smart meter data. Take California’s PG&E: It has deployed 9 million smart meters (both gas and electric) to 6.2 million individual customers, says spokeswoman Libby O’Connell. Of those, 43 percent have signed up for the company’s online portal —  and 38 percent have gone online to look at the data at least once in the last year, says O’Connell.

That’s a big accomplishment —  but web portals may not be enough. First, not every utility is faring so well with them. Many have had “difficulties attracting customers to access and use their Web portals, and the ultimate value of these tools is still an open question,” reports the Department of Energy. Indeed, a 2013 survey by the Smart Grid Consumer Collaborative found that only 8 percent of people were already using “online analysis of your specific energy usage” provided by their energy or utility company.

It takes time and effort to visit a Web site (like we all need another password to remember). And as we know from behavioral research, habits — like rational inattentiveness — are very hard to change, and default behaviors tend to persist. It doesn’t help that, as with PG&E’s portal, the data displayed may come with a delay of half a day or more —  so you can learn how much electricity running the dishwasher at 3 p.m. yesterday used, but not how much you’re using now. 

So are Web sites enough to break through the problem of “rational inattentiveness”? It doesn’t look like it.

Enter behavioral science

So what do consumers need?

A variety of studies in the growing field of behavioral studies of energy use hint at the answer.  They suggest you must not only provide people with real time information about their electricity use in the home, but also show how that translates into dollars and cents.

One key strain of evidence about how to make consumers pay attention to their energy use comes from a radically different way of purchasing electricity. It’s so rare that, unless you live in certain areas such as Phoenix or Texas, you probably never have heard of it: So-called “prepay” systems.

In prepay, buying electricity is much like recharging a phone calling card. You simply open an electricity account, pay in advance for a certain amount of power, and sign up for regular messages — by text, e-mail, or phone — about your account status. The cost of your power use is subtracted from your balance daily, and you receive regular updates about usage and how much money is left in your account.

It may sound like a hassle, but it definitely leads to rational attentiveness: Fail to replenish your account and you can have your power shut off. Prepay also saves energy and money. It is prevalent in Texas’s deregulated electricity market, and according to Nat Treadway of Distributed Energy Financial Group, which studies prepay arrangements, consumers typically use around 10 percent less electricity in these programs — because they have to regularly monitor their power use.

The Salt River Project, a large utility serving the Phoenix region, is the godfather of prepay. Its program, called M-Power, dates to 1993. It’s managed through in-home devices like the one below, which show people how much money they have left and how much power that translates into. Customers swipe pay cards to buy more electricity and refill those cards at ATM-like pay centers.


An M-Power in-home device and pay card. (Salt River Project)

2010 study on M-Power found not only that consumers loved it, but that it saved them 12 percent on energy bills, on average. “M-Power turns conventional electric service on its head,” it noted. “Instead of paying an invoice issued by the utility for recorded energy usage, the customer is responsible for making sure that there is sufficient credit. … M-Power requires that consumers pay attention to when and how they use electricity.”

The next step: Smart pricing and in-home displays

But of course, few of us have access to prepay. So what else works?

Many studies suggest that providing real-time feedback about an individual’s energy use can change their behavior. One of the most compelling in this respect, by Katrina Jessoe and David Rapson at the University of California at Davis, came out last year in the journal American Economic Review. It examined 437 Connecticut households, which had been randomly assigned to one of three groups. All of the households received smart meters that transmitted electricity use information every 15 minutes —  and for the control group, that’s all they received.

The other two groups, however, received advanced notifications about so-called “dynamic pricing” events — summer days when their utility was forecasting high electricity demand, and would accordingly charge significantly more per kilowatt hour. So if the study subjects cut back their use during these blocks of time, they’d save a lot of money. Finally, one group received both dynamic pricing information but also in-home displays (see below for an example), so they could see their energy use in real time, and its cost.


An in-home display from Rainforest Automation, which displays a red “stop” light when you’re using a lot of energy in your home.

The result was sharp: The alerts about dynamic pricing events led to less energy consumption, but the real savings came when you combined alerts with the in-home display. The houses that had both cut energy usage by 11 to 14 percent.

“When they had the in-home displays, they were three times as responsive to the price changes as when they didn’t,” says Rapson. He thinks that’s because the displays let consumers experiment and see how much changing various energy behaviors at home led to savings.

Suddenly, it became worth their time to pay attention to how they use power.

The missing pieces

The key upshot is that significant energy savings, empowered by smart meters, might come from combining real-time information with dynamic pricing. But right now, it appears that most Americans don’t have either of these things —  even if they do have a smart meter.

Deployment of in-home displays under the federal Smart Grid initiative is vastly lower than deployment of smart meters. Only 9,800 have been deployed thus far —  versus 15.4 million government-installed smart meters.

“The widespread deployment of smart meters is an important step in giving consumers access to an unprecedented amount of information and increased control over their energy consumption,” said Energy Department spokesman Lindsey Geisler. “With increased interest and demand from consumers for more access to their own energy information, we anticipate industry and developers will respond with increased availability on more platforms —  like smartphones and tablets.”

The private sector doesn’t seem much better: The 2013 survey by the Smart Grid Consumer Collaborative found that only 1 percent of Americans had “a device in your home that lets you monitor your home’s electricity usage using data from your smart meter.” One problem is cost —  it’s not clear who should pay for these devices, the utilities or the consumer.

Something similar goes for dynamic or “smart” pricing —  one of the great promises of the smart grid, and an idea that makes vast economic sense.

Smart pricing is based on the observation that consumers generally pay a fixed amount per hour for electricity, even as wholesale prices swing all over the place as demand waxes and wanes. If electricity prices reflected the actual cost of power, overall bills would go down because utilities could reduce their generating costs —  but people would also pay more in situations of extreme demand, much like with surge pricing on the Uber app.

“We economists have been saying for decades and decades, a flat tariff for electricity and water doesn’t make sense,” says Sebastien Houde, an energy economist at the University of Maryland. “What we really need is something that reflects the cost of producing electricity at the moment you consume it.”

But if prices are going to become variable, the consumer has to have a way of knowing that. At present, only around 8 million Americans are able to participate in a “smart pricing” program that lets them save money by reducing their energy usage at certain peak times, according to the Edison Foundation’s Institute  for Electric Innovation.

And still more radical savings may be possible, even beyond smart pricing. According to one group of behavioral researchers, the “holy grail” of getting people to think about (and subsequently use less) energy is so-called disaggregation — not only providing information about how much total power they’re using in real time, but actually having that information broken down for every home appliance.

We’re pretty far from that world, though.

Waking America up on energy

In fairness, we’re in the first stage of a technological revolution. You could argue that installing the smart meter hardware, first, was necessary to enable the consumer gains that might then follow. “It is the direction we’re heading, as more utilities express interest in data presentment and time-of-use pricing,” says Patty Durand of the Smart Grid Consumer Collaborative.

Furthermore, the smart grid has many other benefits —  fewer power outages, for instance. And because smart meters provide utilities constant information about your energy use, they no longer have to pay a human being to read your meter. When utilities save money, they can pass on the savings to consumers.

“Utilities are working to develop and introduce new applications, technology and programs to enable customers to make informed decisions with the information provided by smart meters,” said  Adam Cooper, senior manager of research at the Edison Foundation’s Institute for Electric Innovation, a think tank affiliated with the Edison Electric Institute, the utility industry trade group. He continues: “More than 50 million smart meters have been deployed, and as that number grows continued innovation and investment in digital technologies will allow customers to communicate with their electric company in new ways.”

Indeed, there are some successful programs out there. Oklahoma Gas and Electric Company, for instance, created a program combining smart thermostats with dynamic pricing and found that customers saved $191 annually on average.

Still, the American consumer may not be faring as well in this transition as those in some other countries. For instance, energy suppliers are rolling out 53 million smart gas and electricity meters across Britain from 2015 through 2020, with 1 million already installed. And according to the British Department of Energy and Climate Change, every single customer will be offered an in-home display.

It’s not clear anybody should be blamed for the state of the smart meter revolution in the United States —  turning a vast ship takes time. But it’s equally clear that, had it been better informed by behavioral science, consumers might be benefiting a lot more right now. That’s stage two of the smart meter revolution —  and let’s hope it begins pretty soon.

This is the second article in a three-part series titled “Your Brain on Energy” for our new Energy and Environment coverage. The first article was “The next energy revolution won’t be in wind or solar. It will be in our brains.” The final article is “The best way to get conservatives to save energy is to stop the environmentalist preaching.”