NCPA - National Center for Policy Analysis


August 9, 2007

Smart electrical meters hold the key to lower electrical power costs.  Electronic smart meters can continuously communicate information about electric power usage through broad-band over power lines (BPL), computer signals over radio frequency (Wi-Fi), or normal radio frequency (RF) transmission.  These capabilities allow utilities to monitor power outages and spikes, and to reduce the flow of power to specific customers, says the National Center for Policy Analysis (NCPA). 

Smart metering is essential to demand response (DR) electricity pricing plans which charge customers rates that are based on the time of day and their willingness to reduce electricity consumption or to have their service temporarily interrupted when demand overloads the system. 

Demand response allows residential and commercial customers to lower their electric bills by controlling the amount they use.  For example, in a California pilot project involving 2,500 customers:

  • The average customer reduced demand during the hottest summer hours by 13 percent in response to peak prices five times the standard price. 
  • Customers who had smart thermostats (which automatically raise the temperature setting two or four degrees at critical times) reduced their load about twice as much (27 percent).
  • And customers with gateway systems (which adjust the electricity use of multiple appliances) reduced their usage 43 percent. 

Participants in an Illinois DR pilot project saved an average of 20 percent on their electric bills.  If smart metering and innovative service plans were implemented nationwide, consumers and utilities could save $32 billion over 20 years, according to a 2004 RAND Corporation study, and if all the regulatory barriers to competition were eliminated, they could save up to $132 billion.

Source: Joe Barnett and Sean Shurtleff, "Electricity Deregulation: Taking the Next Step," National Center for Policy Analysis, Brief Analysis No. 592, August 9, 2007.

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