Smart Meters Explained: Will They Raise or Lower Your Energy Costs?

Last year, our electric company began installing smart meters in our neighborhood. They’re handy for tracking home energy use, but they come with potential pitfalls, which is why our neighbor opted to stick with his old-school meter.

“The hesitancy and skepticism surrounding smart meters is likely rooted in fears about privacy and exploitation,” says electrician Tim Hodnicki. “People see them as yet more devices scooping up all kinds of data, and they fear that data will be used to nickel-and-dime them in ways that weren’t possible with analog meters.”

Here’s how to sort out the pros and cons of smart meters, why utility companies are switching to them and what that means for your electric bill.

What Are Smart Meters?

Smart meters are digital devices that record the real-time usage of electricity in a home, and then electronically send that data to the utility company. They’re installed on the meter box on the outside of a house, replacing the original meter.

How Do They Differ From Traditional Meters?

Old-school meters are analog devices, which means utility workers must visit homes to read them. Conversely, smart meters electronically send usage data to the utility company, plus allow the company to remotely turn on and off the power to a home.

“Smart meters provide a constant stream of data, which not only shows how much energy is used, but also provides insights into when usage peaks and dips throughout the day,” says Hodnicki.

What Data Does a Smart Meter Collect?

Smart meters record how much energy is being used, plus when it is being used. Depending on the system, that happens every 15 minutes to an hour, says home energy efficiency expert Martyn Fowler. “There’s also communication from the energy provider to the meter for things like system updates and detecting an outage,” he says.

Which Utility Companies Are Rolling Out Smart Meters?

Many of the larger utility companies are implementing smart meters, including Pacific Gas & Electric, Duke Energy, Southern Company and Xcel Energy.

Why Are Electric Companies Investing in Smart Meters?

It saves them money, since they no longer need to send technicians into the field to read meters. It also helps them improve grid management. “The more data they have on energy demand throughout the day, the better they can respond to meet that demand,” says Fowler.

What the Customer Gains

For customers, the biggest benefit of smart meters is the ability to understand how and when they use electricity. That often encourages less power use, plus helps reduce use at peak hours, when electricity often costs more. Also, for those with solar, smart meters give insight about when to pull from the grid versus battery storage.

“Used correctly, smart meter data is one of the most powerful tools homeowners have to take control of their energy costs,” says solar expert Andrew Hoesly. “With utility rates rising across the country, smart meters give homeowners their first real tool to fight back with data.”

Smart meters also guarantee customers are billed on their actual energy usage, instead of estimated usage. “This could go both ways, though, depending on whether a customer was previously billed according to inaccurate estimates,” says Hodnicki. “It may mean more savings in the future, or it could mean adjusting to a higher energy bill.”

What the Company Gains

Smart meters save on labor costs, make grid management easier and help utility companies plan infrastructure and forecast demand. They also enable companies to collect customer data to design new rate structures, including time-of-use and demand charges.

Companies also benefit by harvesting and selling aggregated usage data to third parties for advertising and market research, and targeting customers for additional programs, says energy analyst Arif Gasilov. “Opting into a smart meter often means opting into a data collection regime,” he says.

Will Smart Meters Lead to Higher Electric Bills?

Probably. Smart meters enable companies to enact dynamic pricing, like increasing rates during peak-use hours. That means your bill will likely rise if you don’t adjust your habits. “The flip side is that off-peak rates are often significantly cheaper, and homeowners who shift usage accordingly can come out ahead,” says Hoesly.

But, many people’s lives don’t allow for that, which means their bills do go up once dynamic pricing is in place, says Gasilov. Also since smart meters are a capital expenditure for utility companies, they’re likely to raise rates to cover the expense of switching over to them, he says.

“There is no reason for a for-profit corporation to invest in something that doesn’t have a ROI,” says Gasilov. “A $500 million smart meter deployment earns the utility roughly $50 million per year in guaranteed return, funded through your bill. It is electric companies increasing rates on customers in order to buy smart meters to charge the customers even more.”

FAQ

Can you opt out of getting a smart meter?

Usually, but it depends on your utility provider. If you do, you’ll also likely be charged a monthly opt-out fee.

Can the electric company limit your power remotely with a smart meter?

Yes. With smart meters, utility companies can remotely disconnect and reconnect meters. “This is for safety reasons, or if there is an issue with billing,” says Fowler.

How can you use smart meter data to lower your bill?

If your utility company has higher rates for peak-use times, a smart meter can help you realize how much electricity you’re using during those times, so you can then reduce it. “You might also be surprised to find how a few small adjustments, such as turning off unnecessary lights in your home or changing when you run large appliances, can make a difference,” says Hodnicki.

About the Experts

• Tim Hodnicki is an experienced electrician and president/owner of Electrical Experts in Massachusetts.
• Arif Gasilov is partner for climate and environmental reporting at Gasilov Group, where he advises on energy regulatory analysis, sustainability strategy and utility cost allocation.
• Martyn Fowler is founder of Elite Renewables, where he helps homeowners improve energy efficiency and reduce energy costs.
• Andrew Hoesly is general manager of SolarTech, a residential solar installation company serving California and Arizona.

Sources

• Dean Mahmoud is CEO of EcoGen America, which helps homeowners understand the costs associated with energy and financial decisions regarding their utility setup.

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