Investigative Report

Why Smart Meters Might Be a Dumb Idea

Smart meters are supposed to help to give you more control over your energy use. But many experts doubt that you’ll ever see the electricity and cost savings that electric companies and smart-meter manufacturers tout.

Email to a Friend

Itron

If your house doesn’t have a smart meter that measures the amount of electricity that you use, there’s a good chance that your electric company will install one in the years ahead.

Although it might sound appealing to have a “smart” digital device instead of your old analog meter, you’d better curb your enthusiasm and get a firm grip on your wallet. More than half of all homes in the United States will have smart meters within the next 10 years, experts say.

Smart meters are designed to give consumers and electric companies more-accurate and immediate information about your electricity use. Think of a smart meter as a communications link between your home and the electric company. That two-way link will give you and the electric company the ability to share real-time data about the amount of electricity that you use and when you use it. Knowing this allows you to better control your power use and save money on your monthly electric bill. But based on our investigation, it’s clear that smart meters won’t soon deliver the promised benefits, particularly the energy and pocketbook savings that are being touted by practically everyone who’s connected to smart meters.

We interviewed 35 experts, including smart-grid- and utility-industry executives, government regulators and consumer advocates. We also reviewed thousands of pages of government documents, filings with state utility commissions, materials from smart-meter-makers, and reports that were produced by the emerging smart-grid industry. A few experts suggest that smart-meter conversion represents little more than a boondoggle that is being foisted on consumers by the politically influential companies that make the hardware and software that are required for the smart-meter conversion. And based on our investigation, it’s difficult to disagree. From a consumer’s perspective, the potential negative consequences outweigh the benefits in three critical areas:

Cost: Although the smart-meter industry receives billions of dollars in government subsidies that are paid for by taxpayers, you still face fees on your monthly electric bill that cover the electric companies’ cost of installing the smart meter. In addition, you’ll eventually be encouraged to fork over hundreds of dollars to purchase in-home equipment that works with your smart meter and is designed to help you to monitor and control just how much energy that you use.

Rate Changes: Electric companies will change the way that they charge you for electricity after smart meters become the standard, because it’s the best incentive that the industry has to get you to buy all of that monitoring equipment and thus get the most out of the smart meter. Many consumer advocates fear that you’ll be charged higher rates during peak-use times. That might hurt particularly those who don’t shell out money for monitoring devices, because they won’t be able to control their electricity use as precisely as those who have the equipment.

Smart-Meter Synopsis

Read Now

Energy Savings: Pilot projects where smart-meter technology is in place suggest that the smart-meter industry and electric companies overestimate how much that your electricity use will decrease unless you are forced to pay more during peak periods and unless you commit to using all of the appropriate equipment.

What’s discouraging about the all-but-mandatory dynamics of the smart-meter transition is that it’s appealing only if you’re willing to pay a lot of money to save a little electricity. “They should not install smart meters and the smart grid,” says Nancy Brockway, who is an attorney who specializes in electric-utility regulation and who served on New Hampshire Public Utilities Commission from 1998 to 2003. “These [changes] are very expensive, and the benefits have not yet been proven enough to cover the cost.”

FULL OF ENERGY. To the emerging smart-grid industry, smart meters and the ancillary equipment that is designed to communicate with them—smart appliances, smart thermostats and electricity-monitoring-and-control systems that you can set up at home or remotely over the Internet—represent a new market that is worth hundreds of billions of dollars in the years ahead.

Consumers will pay for it all through electric bills, taxes and direct purchases. All told, it could amount to as much as $2,300 per household, according to our estimates. That’s because in state after state, public utility commissions—urged on by utilities and smart-meter-makers—are ordering the installation of smart meters at the ratepayer’s expense. A few state utility regulators say the smart-meter rollout should be slowed until consumer cost issues are settled and electric companies provide more evidence that there will be energy savings.

Despite these objections, it’s clear that smart meters ultimately won’t be stopped. Politicians and utility regulators have joined with electric and smart-meter industries in claiming that smart meters will enable consumers to dramatically cut their energy use, particularly during periods of peak demand. They say reduced energy use will cut the price of electricity and eliminate the need to build expensive power plants that largely run just on hot summer days, mostly to meet the air-conditioning needs of consumers.

Smart-meter supporters also promise that the reduction in electricity use will save consumers money and will cut the amount of greenhouse gases that power plants spew. And they argue that smart meters are needed to fully build out the smart grid, which uses digital technology to create a more efficient power-distribution system.

IN CONTROL. The arrival of smart meters means that consumers soon will be able to monitor
and control their electricity use by using their computers or smartphones.

IN CONTROL. The arrival of smart meters means that consumers soon will be able to monitor and control their electricity use by using their computers or smartphones.

Shutterstock/General Electric

Department of Energy says utilities have installed about 18 million smart meters in states across the nation, including California, Colorado, Illinois, Maryland and Texas. Meanwhile, federal economic-stimulus money that totals $3.4 billion and was granted by DOE is supporting the installation of 40 million additional smart meters by scores of electric companies in 40 states, federal territories and federal districts in the next few years. By 2015, an estimated 65 million smart meters will have been installed. These will cover 52 percent of household electricity customers, according to Edison Electric Institute, which is a research group that is funded by electric companies.

The cost of a smart meter runs at least $100 per household, which you’ll pay for indirectly through fees that are on your electric bill. Then there are the expenses of installing and operating the meters. Itron, which is one of several companies that makes smart meters, estimates that consumers will pay up to $255 billion to blanket the nation with smart meters. Although it’s clear that smart-meter manufacturers, as well as computer and Internet companies, are driving the smart-meter transition, electric companies are happy to go along for the ride. Electric companies will get a guaranteed cut of around 10 percent for every smart meter that they install and for all of the investments that are needed for them to access the smart meters.

What’s more, electric companies won’t have to pay for an army of meter readers anymore, because smart meters can be read remotely. This remote-reading feature interests gas and water companies, many of which are beginning to use smart meters too.

RATE OF CHANGE. After they install the smart meters, the electric companies’ main job will be to ensure that they get customers to save power, so  the companies don’t have to purchase or generate as much electricity, says Stephen George, who is a consultant to the electricity industry on smart meters.

Would you care to guess how electric companies intend to make you save power? They will introduce time-of-use rates or other monetary incentives after smart-meter systems are installed.

Smart meters can measure electricity use in real time and, therefore, will immediately allow electric companies to determine peak-use times. As a result, electric companies could charge different rates for the power that you use at different times of the day—and on different days. In general, you can expect rates to be the highest during peak-demand times, such as the afternoon on the hottest summer days of the year, and to remain the same as they are now or even to drop at other times. To put these rates into place, electric companies will need the approval of the state public utility commission and will have to notify customers in advance.

Despite a backlash over the prospect of time-of-use rates by consumer groups and even a few state utility commissions, it’s difficult for us to see how time-of-use rates are anything but inevitable. The whole premise of smart-meter benefits relies on getting consumers to pay strict attention to how much electricity that they use and when they use it, smart-meter advocates say. And to make that happen, electric companies seem determined to swing a stick at consumers rather than to dangle a carrot.

That’s great news for the companies that make the hardware and software for devices that will monitor and help you to control your electricity but lousy news for consumers who don’t buy the equipment. These consumers will risk having their electricity bills go through the roof when electric companies charge potentially five to 10 times more for electricity when power demand peaks on the 10 or so hottest days of the year, as seen in pilot tests of time-of-use rates.

If you don’t fork over the money to buy the equipment that allows you to monitor your energy consumption, use remote controls to turn your air conditioner on and off or buy appliances that have embedded smart chips that are designed to work with home-monitoring systems, your $200- or $300-per-month summer electricity bill could, as a consequence, easily become a $400 or $600 monthly drain on your wallet.

However, experts say even the most basic system to monitor home-electricity use likely will cost from $400 to $500, so you’ll feel a pinch either way. Consumer groups still hold out hope that electric companies will abandon time-of-use rates in favor of other incentives, such as rebates or monthly credits for customers who reduce their electricity use during peak times with the help of an in-home monitoring system. For instance, Maryland Public Service Commission has blocked time-of-use rates for now and says electric companies that have implemented smart-meter technology should offer rebates instead of punitive rate increases. And Maryland regulators say electric companies should allow consumers to opt in on such incentives and give those who opt in clear instructions on how to best monitor their electricity use.

Yet even rebate incentives could pose problems for everyone in an extreme scenario. What happens, for instance, if most people eventually use smart-meter monitoring to reduce their energy use? Electricity use would go down, and electric companies that don’t generate their own power could claim victory for the smart-meter system, because they would spend less to buy electricity from other sources. But electric companies that generate their own power might be forced to raise the rates that they charge consumers to make sure that they cover their fixed costs.

In other words, if the smart-meter system works too well, your rates might go up anyway depending on where you live.

TRACKING DEVICES. It’s difficult to see how anyone ultimately will stop the advance of smart-meter integration, because everyone who has a stake in it is marching in lockstep to a long-term game plan. Technology companies everywhere are in a footrace to deliver the in-home devices and services that consumers will use to monitor and ideally limit their electricity use.

Just knowing that Internet companies Google and Microsoft; wireless companies Motorola and Verizon; and computer companies Cisco, Hewlett-Packard and IBM are involved should make consumers realize that smart-meter implementation is all but a given.

Today, in the absence of in-home control centers, Pacific Gas & Electric (PG&E) is making smart-meter-energy-use data available to customers on the company website. Commonwealth Edison in the Chicago area is doing the same. The problem with that approach is that the data are typically a day behind, so you can’t get a real-time handle on your electricity use. That will change. When in-home monitoring systems begin to arrive within a year or two, smart meters will communicate both with the devices as well as with the electric company. By then, even the systems that the electric companies will provide likely will have caught up to show real-time energy use.

We could write pages on exactly how these in-home monitoring systems work, but the short version is that if you buy all of the necessary accessories, you’ll be able to program your major electricity-using appliances and devices to respond to pricing and peak-demand signals that are sent to your network by the electric company. In other words, you’ll be able to program your network to automatically turn off devices whenever the price for electricity exceeds what you want to pay. And you’ll be able to change your energy-use settings via the Internet by using your computer or smartphone. For instance, you’ll be able to program the in-home monitoring system to shut down air conditioning or dial back heaters when you leave home and start them up before you return. Of course, you can do much the same thing with today’s programmable thermostats. But they aren’t equipped to receive and respond to price and peak-demand signals from your electric company or your own signals through the Internet, if for instance, you decide to come home earlier or later than usual.

Although this capability sounds pretty cool, it has the ability to burn a hole in your wallet. Even the most basic of in-home monitoring devices should cost at least $100 but can run up to $350 for a more complex system, according to Tendril, which makes in-home monitoring systems. Those prices reflect what Tendril is charging utilities to buy the devices in bulk for pilot projects, so it’s safe to assume that the price that consumers will pay at retail will be higher.

Meanwhile, appliances that have embedded chips that allow them to work wirelessly with in-home monitoring systems could arrive on the market this year, Association of Home Appliance Manufacturers says. Nobody is saying how much these new models will cost, but you can expect that they’ll be at the high end of each appliance category. So, for example, it wouldn’t surprise us if refrigerators that have smart chips cost at least $2,000.

Moreover, if your in-home monitor doesn’t directly control your heating and air-conditioning system, you can expect to shell out another $300 or so for a smart thermostat that can communicate with the in-home monitoring system.

It should come as no surprise that Google is pressing utilities to allow third-party companies (such as Google) to have access to smart-meter data too, so these companies can create in-home monitoring services for consumers. Google’s pursuit underscores the variety of system choices that you’ll eventually have for remotely controlling and monitoring your home-energy use.

Third-party access to smart-meter data also raises the prospect of telecom companies bundling home-electricity monitoring to the package of telephone, Internet and TV services that they already offer. Industry experts note that smart meters even have piqued the interest of the cable industry, which envisions letting you manage your home-electricity use by using your remote control and your TV. Such systems should begin to appear around 2015, experts estimate.

There also are emerging doubts about how long that the digital equipment—including the meters themselves—that is used in smart-meter systems will last. Some experts wonder whether the industry has planned obsolescence in mind, which would force consumers to pay for new hardware and software—and corresponding upgrades at the electric company to read the new devices—every few years.

For instance, the electricity industry typically has planned that its meters would last up to 25 years, according to Mike Hyland, who is senior vice president of engineering services for American Public Power Association. However, the companies that make smart meters, he says, have been suggesting that the meters might need to be replaced as often as every 3 years to keep up with technical innovations.

POWER PLAY. We understand when the smart-meter industry says that upgrading its digital devices to take advantage of the latest technologies is necessary if smart-meter providers are to deliver the maximum benefit to consumers. But why in the world should consumers have to keep paying for technology that they’re forced to adopt? Ask the federal government.

In helping to create the smart-meter industry, politicians from both parties have done what’s best for the industry rather than for consumers. The smart-meter industry persuaded congressional Democrats and Republicans to back the introduction of smart meters in both the 2005 and 2007 energy acts, which were signed into law by Republican President George W. Bush. Then, when Congress included DOE grant money to help to pay for smart meters in the 2009 American Recovery and Reinvestment Act (ARRA), Democratic President Barack Obama signed it into law. All that action doesn’t even include the tax credits that lawmakers have passed for the manufacturers of smart-meter-related devices.

Sen. Maria Cantwell, D-Wash., says that without smart-meter technology, the nation would need to spend tens of billions of dollars to build more power plants and infrastructure. But the smart-meter movement also will bring a lot of jobs to her home state. Itron, which stands to make a financial killing in the smart-grid transition, is based in Washington. Itron got $2.3 billion in advanced-energy manufacturing tax credits under ARRA for expanding its meter factories, under a provision that was championed by Cantwell. So it’s no surprise that Cantwell tells Consumers Digest that time-of-use rates when coupled with smart-meter technology will reduce costs for consumers.

But already there’s mounting evidence that smart-meter systems might not significantly curtail electricity use. As the disappointing energy-savings data that were generated from some of the first areas to use smart meters illustrate, there’s plenty of reason to wonder whether consumers will ever see the energy and cost savings that are being promised by political cheerleaders, industry proponents and many state regulators.

So far, smart-meter systems have produced little energy savings except in small and carefully controlled projects in which consumers have basically been spoon-fed on how to realize the maximum benefits. These projects have included time-of-use pricing and often include home-area networks that allow participants to monitor and control electricity use.

For instance, Baltimore Gas and Electric (BGE) outfitted 1,000 of its customers with smart meters in 2008 and found that customers cut energy use by 20 percent to 40 percent on peak-power-demand days during the summer. The reduction in electricity use amounted to energy-bill savings that totaled about $100 over roughly 3 months, according to Mark Case, who is senior vice president of strategy and regulatory affairs for BGE. Those savings sound impressive, but we believe that it’s unrealistic to assume that most consumers will realize anything close to those savings even if they comply fully with smart-meter adoption, because the pilot project has spoon-fed its users on how to achieve the maximum benefits.

There have been other pilot programs in which small groups of customers received smart meters, home-area monitoring and control networks, price signals from utilities as to the varying cost of power, and training and outreach about how to use the systems. In those cases, electric companies have found that their customers trim energy use by around 15 percent during peak periods, according to PG&E spokesperson Paul Moreno. Savings might amount to just $100 per year on a PG&E residential electricity bill, according to Moreno.

Of course, $100 is nothing to sneeze at. But we crunched the numbers, and when you consider all of the costs that consumers will have to pay for equipment and services, if you save $100 per year, it’ll be at least 23 years before you’ll get a return on your investment.

But what if you decide to fork out even more money—figure at least $2,000 each—to buy new smart appliances? And don’t forget that you’ll continue to pay—directly and indirectly—for the inevitable hardware and software upgrades for smart-meter systems.

Let’s be honest: Even if smart meters help you to save on electricity use, it’s difficult to imagine how most consumers would save any money in the long run.

In fact, independent experts warn that even just the average savings on electricity use for consumers who have smart meters will end up being much less than the unrealistically high projections that electric companies tout today. The average energy savings for all rate times is more like 3 percent, according to Ogi Kavazovic of OPOWER, which helps utilities to design bills and websites for consumers, so they can better understand their home-energy use when using smart-meter data. And that 3-percent figure accounts only for people who monitor their electricity use.

On top of all of that, experts express real doubt as to whether most consumers will buy the equipment and services that are necessary to monitor their electricity use—much less use it after they have it all installed—without the threat of time-of-use rates.

For example, PG&E found that only 25,000 of its more than 3 million customers who have smart meters have bothered to sign up for a discount that they can receive if they use smart-meter data to trim their electricity use. That’s less than 1 percent of all users! Of course, the smart-meter industry is betting that compliance will improve after electric companies introduce stronger rate incentives.

All in all, the potential benefits that the smart-meter industry is desperate to achieve—or at least make you believe is possible—seem to be theoretical at best. If the success of the smart-meter transition is based on consumers saving money and energy in the long run, we can’t help but imagine that it could take decades for that to happen—if it ever does.

And make no mistake: Smart meters and all of their negative consequences are coming. When they arrive, consumers once again will realize that they have little power.

William J. Kelly is a correspondent for California Current and has written for Consumers Digest on ethanol, Energy Star and automotive repair.

Back to Article