Smart Meters Need Effective Electricity Pricing to Deliver Their Full Benefits

By: Beia Spiller, Economist, and Kristina Mohlin, Economist

walletSmart meters, which provide detailed electricity use data throughout the day, are a critical piece of a smarter, more resilient 21st century energy system. But they are not a cure-all for modernizing our antiquated power grid.

In Matthew Wald’s recent New York Times article, entitled “Power Savings of Smart Meters Prove Slow to Materialize,” he argues that smart meters have failed to produce measurable savings. And we agree – but not because smart meters themselves have failed. Rather, most customers with smart meters don’t have access to people-powered, or time-variant, electricity pricing, which creates opportunities to save money. This is a missed opportunity for customers, utilities, and the environment.

Time-variant pricing better reflects electricity costs

Throughout most of the country, the price paid for residential electricity is the same regardless of the time of day when it’s consumed. This arrangement is a byproduct of an earlier era, one in which electricity information was difficult to convey and the actions of individual customers was impossible to gauge in real time. In practice, electricity is actually dirtier and more expensive to produce and transmit at certain times of the day, particularly when everybody wants it – for example, at 6pm during a heat wave when customers are cooling their homes. Also, during this high-demand time, energy prices spike and electric utilities flip on expensive and dirty fossil fuel “peaker” power plants to meet energy demand. From an economic point of view, it would be more efficient for electricity used at these peak demand times to have a higher price.

Most industries – from automobiles to food –have fully embraced the benefits of varied pricing for premium items or services. The utility industry is one of the few that has not. Charging the same rate for electricity at all hours is like charging the same price for filet mignon and ground chuck. Of course, we can all agree that pricing meat in this manner is inefficient, resulting in an inevitable shortage of filet mignon. Flat electricity rates work the same way, causing customers to over-consume the most expensive, polluting power. The result: higher bills for everybody.

Time-variant pricing attempts to make the true cost of electricity transparent to customers. Without smart meters, utilities have no idea what time of day people are using electricity and are therefore unable to apply time-variant pricing. Since reducing energy demand helps utilities avoid purchasing expensive peak electricity and investing in extra capacity to meet rising demand, smart meters save utilities money as well. Finally, as far as customers are concerned, there is no incentive to change the way they use electricity without time-variant pricing.

Lost opportunity for customers to save on bills

In many states, even though utilities have the ability to offer time-variant pricing, they simply don’t for a number of reasons – among them are legislative barriers and concerns that this type of pricing might negatively affect low-income customers. But, even in states where time-variant pricing is available, adoption is low due to a lack of education and outreach.

The way in which these programs are structured also affects the adoption rates. As we wrote in an earlier blog post, many of the utilities offering time-variant pricing ask customers to opt in to the program, rather than setting it as a default from which customers can opt out. It turns out that this type of choice structure invariably leads to low adoption rates – not just with time-variant pricing, but with a host of other types of decisions, such as organ donation. Even in California where several utilities offer time-variant pricing and smart meters are widespread, very few customers have signed on to these programs.

This is unfortunate, as NYT’s Wald illustrates with two examples, given that customers who have smart meters alongside time-variant rates can indeed save money. He talks to Karen Taubman, an Illinois customer who knocks nearly 20 percent off her bill every month, and Joe Godinsky, also from Illinois, who’s “convinced he’s saving money and convinced his parents to put their house on a real-time rate, too.”

But very few customers in the country are as lucky as Ms. Taubman and Mr. Godinsky. Some might still have standard metering technology, which only measures electricity use for the entire month, leaving them oblivious to the periodic nuances in electricity pricing that could be saving them money. And, even those who have smart meters will have little incentive to respond to the valuable information their meters provide unless their utility companies offer pricing schemes that vary the price of electricity depending on the time of day it is used.

The rise in smart meter deployment is a great opportunity to realize savings both for the utilities and the customers by avoiding expensive and dirty peak time generation, thereby helping to decrease the average cost of each kilowatt hour of electricity sold and reduce harmful pollution. But this opportunity can only be realized by implementing time-variant pricing; smart meters alone won’t be enough.

This entry was posted in Clean Energy, Electricity Pricing, Grid Modernization. Bookmark the permalink. Both comments and trackbacks are currently closed.


  1. Posted December 16, 2014 at 6:47 pm | Permalink

    Unfortunately it appears Ms. Spiller has no background in health or privacy areas, critical aspects of any smart meter/grid analysis. While it's true that power use shifted to off peak hours may save a consumer money and reduce loading on the grid, this is neither new, nor dependent on a smart grid or meter. Neither is a shift possible for any number of users with various temporal, physical and medical limitations. I grew up in the NY area in the 50's and 60's. Ditto for my partner in Cleveland. We both had reduced rates for off peak usage even then and our meters were of the analog or electromechanical type. The only game in town.

    The smart meter/energy savings connection is the main "sales pitch" put forward by utilities and apologists for them like EDF has become. The pitch is that of a huckster. There have been for some time home energy monitoring devices available from the $20 Kill-a-Watt meter to whole-house bells and whistles versions for under $1K. The simple meters happen to be available for loan in every Maine public library. A smart meter is not necessary since what is measured is INSIDE the house, measured at the receptacle or breaker box.

    Analog meters don't emit microwave radiation [a Class 2B carcinogen] 24/7 on an involuntary basis like smart meters do. Nor do they collect detailed information portraits of your various appliance usage at 3 minute, 15 minute or 1 hour intervals. How would your readers feel if the utility or government mounted a bunch of video cameras throughout your house and collected the data? Same deal with smart meters only a different language. Not only is the radio frequency radiation from smart meters probably cancer causing in the long term [10-30 years] but the non-cancer health effects can be drastic and life-shattering for those with acute sensitivities [and we are all susceptible with increased exposure]. See how well you do at work [if still possible] or in your relationship with constant major headaches, spontaneous bleeding, tinnitus, heart arrhythmia,and or fatigue, all common symptoms of RF exposure.

    The real money in smart meters is not firing the meter readers or in getting their trucks off the roads [obviously one could self report monthly usage numbers by mail, phone or internet] but in ultimately being able to sell your data to third parties. Make no mistake, this is the holy grail and steady revenue stream. Let your economist write about that!

    • Beia Spiller
      Posted December 18, 2014 at 1:05 pm | Permalink

      Thank you very much for your thoughtful comments, Ed. Please see EDF President Fred Krupp’s memo on radio frequency concerns from smart meters (which EDF takes very seriously):

      With regard to your comment about the need for customers to have the option to sell their electricity data to third parties, please see our blog post for more on EDF and the Citizens Utility Board (CUB)’s “Open Data Access Framework”:

      • Ed Friedman
        Posted December 19, 2014 at 6:22 pm | Permalink

        Fred's letter helps make the point many of us have expressed about EDF's stand on smart meters and many environmental issues, the organization is favoring industry.

        The letter implies because the WHO classification is largely based on cell phone/brain tumor research, smart meters need not apply. In fact, while the first part is true, the classification is indeed based in large part on phone studies, the classification specifically applies to all non-thermal RF.

        To suggest RF 10' from a smart meter is less than next to a cell phone is ridiculous. It's apples and oranges. The power of cell phones and smart meters are actually quite similar, about 1 watt. While most people are close to their phone for some time during the day, thousands are a few inches away from their meters when in bed for 8 hours at night. And, during the day, emissions radiate from household wiring. You can chose to text, use speaker phone or turn your phone off. None of these options exist for your smart meter. In fact if your state allows opt outs, you get to pay an extortion fee to avoid actual harm or the threat of harm [only if your old analog meter is the opt out meter].

        Meters operate 24/7 versus phones, and in micro pulses which is worse than steady, transmit 10,000-190,000 times/day and are mandatory. In actual tests done in AZ comparing a couple of phone devices to smart meters, the w/m2 were higher from the meters.

        Fred's letter also cites the CA Council on Science and Technologies [CCST] report. This report is noted largely for its dependence on industry, in large part the Electric Power Research Institute [EPRI]. Many independent scientists were asked for input into this report only to find their comments were not included except as separate testimony. The one scientist cited by Fred as someone EDF went to for advice, Dr. Leeka Kheifets, is known for her conflict of interest in this field. She has worked for EPRI, been on IEEE committees and worked as a consultant for Arizona Public Service, and San Diego Gas & Electric to name a couple.

        If these citations are the best EDF can do to show its objectivity, they have indeed as I said, made our point. Various research papers are clear-when industry funds a study, approximately 80% show no effects and 20% show effects. When independent studies are done however, the results are opposite with 80% showing effects and 20% not. Funding bias remains alive, well, and thriving in today's corporatocracy.


  2. Chris Turner, Esq.
    Posted December 16, 2014 at 10:49 pm | Permalink
    • Beia Spiller
      Posted December 18, 2014 at 1:06 pm | Permalink

      Thank you very much for your thoughtful comment, Chris. As in my reply to Ed, I'd like to point you to EDF President Fred Krupp’s memo on radio frequency concerns from smart meters (which EDF takes very seriously):

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