SAVING ENERGY THROUGH BETTER INFORMATION: A NEW

ENERGY PARADIGM?

MARK BERNSTEIN and MYLES COLLINS

For the past 40 years, governments, utilities, and private companies have developed
increasingly efficient appliances for household use and governments have initiated
policies to encourage the deployment of these technologies. To the credit of these
activities, we have improved the efficiency of electricity use in the United States,
but it has not been enough to overcome the increasing demand from proliferation
of electricity-using devices. In addition, penetration rates for some types of efficient
equipment have remained relatively low in certain regions. U.S. electricity demand
thus continues to grow. In this paper, we argue that to achieve significantly greater
efficiency improvements needed to meet future demand for energy services, we should
provide more information to consumers about their energy use and give them more
control over this use. While more studies are needed to assess just how far these types
of measures can take us, there is enough evidence to show that with better information,
consumers often make choices that reduce energy use.

I. INTRODUCTION permitting process. Within the household, apart

Everyday, electricity brings countless bene-
fits to households throughout the world. How-
ever, the ways we generate and use it are
problematic from both a societal and consumer
standpoint. From a societal standpoint, we are
concerned about the harm to the environment
from power plants. The vast majority of these
plants combust some type of fossil fuel and
release CO2 along with a number of other
harmful air pollutantsinto the atmosphere.
The United States accounts for 25% of other
global GHG emissions and the residential sec-
tor accounts for 18% of emissions in the United
States (EIA 2009). Reducing energy use in the
residential sector could therefore have a signifi-
cant impact on total worldwide GHG emissions.
From a consumer standpoint, households are
concerned with the rise in electricity prices
coupled with their increasing demand. The price
of electricity has been rising steadily over the
past decade and consumers could face even
higher prices as new conventional power plants
face more obstacles to coming online from the
from a monthly bill from the utility, consumers
do not see electricity, they do not know how
much they are using, and they do not know
what portion of their use goes to each appliance.
Consequently, if households want to save money
or reduce their carbon footprint, they do not
know which appliances to use less, which to
unplug, and which to replace. Stern and Aronson
(1984) compare receiving this sole, monthly bill
to hypothetically going to a supermarket where
individual items are not labeled with a price and
the shopper can only see the total, non-itemized
bill when they check out.
In-home electricity displays that show current
and historical use may offer a way for con-
sumers to make electricity visible and to gain
more control over energy consumption. House-
holds can see how much electricity they are
using on a real-time basis and observe the effect
of turning certain appliances on and off. Instead
of only having the option to respond to electric-
ity costs once per month when the bill arrives,
more frequent information will allow consumers

Bernstein: Operating Partner, Pegasus Capital Advisors,

505 Park Avenue, 21st Floor New York, NY 10022. ABBREVIATIONS
E-mail mbernstein@pegadvisors.com DSM: Demand-Side Management
Collins: Doctoral Candidate, Pardee RAND Graduate EPRI: Electric Power Research Institute
School, Santa Monica, CA, 90407. E-mail mcollins@
LPG: Liquid Petroleum Gases
rand.org

219
Contemporary Economic Policy (ISSN 1465-7287)
Vol. 32, No. 1, January 2014, 219229 doi:10.1111/j.1465-7287.2012.00330.x
2014 Western Economic Association International
220 CONTEMPORARY ECONOMIC POLICY

FIGURE 1 FIGURE 2
Residential Energy Consumption in the United Residential Energy Consumption by Type of
States, 19782005 Energy, 19782005

12 160 6
140

Million BTU per Household

10 5
Quadrillion BTU (Total)

120

Quadrillion BTU
8 4
100

6 80 3
Natural Gas
Total Electricity
Per-Household 60 Oil/LPG
4 2
40
2
20 1

0 0
1975 1980 1985 1990 1995 2000 2005 0
1975 1980 1985 1990 1995 2000 2005
Year
Year

to respond to changes in costs, learn how they FIGURE 3

use energy, and possibly reduce GHG emissions Household Energy Consumption by Type of
by demanding less electricity.
Energy, 19782005
This paper examines household energy con-
sumption and summarizes past studies on how 80
information influences residential electricity use.
70
It examines the potential for energy savings
60
from better information and describes the types
Million BTU

50
of analyses that need to be done to get a better
40
handle on the potential for savings.
30 Natural Gas
Electricity
20 Oil/LPG
II. U.S. ENERGY USE: LESS PER HOUSEHOLD BUT
10
MORE OVERALL
0
In the late 1970s and early 1980s, total 1975 1980 1985 1990 1995 2000 2005
Year
U.S. energy consumption in the residential sec-
tor decreased from 10.6 quadrillion BTU (quad
BTU) per year to 9.0 quad BTU (Figure 1). of space heaters has improved and the per-
Residential energy consumption includes elec- household consumption of these fuels has, in
tricity, natural gas, fuel oil, and liquid petroleum turn, declined. Part of the reduction is also due
gases (LPG), but does not include petroleum for to recent warmer weather, which has reduced the
transportation. From 1982 to 2005, total con- need for people to heat their homes. Increases
sumption gradually increased again to 10.5 quad in energy efficiency have also been a signifi-
BTU. Of the separate components of energy, cant contributor, though trends to larger homes
total electricity consumption has increased dra- and new energy-using technologies have kept
matically since the early 1980s, while natural per-household energy use from declining even
gas and fuel oil/LPG consumption have slightly further (EIA 2009).
decreased (Figure 2). Figure 4 breaks household energy consump-
On a per-household basis, we see declines tion down into four end uses: space heating, air
in natural gas and fuel oil/LPG consumption conditioning, water heating, and appliances. The
and a more modest percentage-wise increase figure shows an overall decrease in energy for
in electricity consumption (Figure 3). A steady space heatingthe largest portion of household
increase in the number of people and num- energy demand. The amount of energy used for
ber of households in the United States explains air conditioning and appliances, however, has
the difference in appearance between the total been growing. Appliances include energy uses
and per-household figures. Several other fac- from lights and kitchen appliances to audio and
tors are driving the trends in the two graphs. computing devices. Generally, appliances and
The primary fuels for space heaters are nat- air conditioners receive their power from elec-
ural gas, fuel oil, and LPG. The efficiency tricity and Figure 5 shows per-household energy
 BERNSTEIN & COLLINS: SAVING ENERGY THROUGH BETTER INFORMATION 221

FIGURE 4 in over 65% of households, with 23% of house-

Household Energy Consumption by End Use, holds owning two or more.
19782005 Looking ahead to 2030, EIA projects elec-
tricity demand to increase by 20% from 2007
100 levels. In part, it attributes this growth in
90 Space Heating
Air Conditioning
demand to a rise in home cooling as more and
80
Water Heating more people move to the South and West and
70 Appliances
60
also as they convert older homes from win-
dow/wall AC to central AC (EIA 2009). These
Million BTU

50
40 changes complement a projected 24% increase
30 in the number of households. The increase in
20 demand might have been larger without recent
10 improvements in the efficiency of electricity-
0
1975 1980 1985 1990 1995 2000 2005
using equipment.
Year

III. HOUSEHOLD ELECTRICITY EXPENDITURES ON

FIGURE 5 THE RISE
Electricity Consumption per Household by
The average real price of electricity nation-
End Use, 19782005
wide has been on the rise since leveling off at
30
the end of the 1990s.
The higher prices combined with increased
25 electricity use has led to more household spend-
ing on electricity. For consumers in the United
Quadrillion BTU

20
15
10
5
0 low and have either stayed relatively constant
1975 1980 1985 1990
Year
use for electricity only. As expected, increases
in electricity use are due to people using more
electricity for appliances and air conditioning;
we see a 25% rise in electricity use for appli-
ances and an even bigger rise (proportionally)
for air conditioning.
We can see at least part of where the increases
in electricity use for appliances come from by
looking at Figure 6, which shows appliance
trends in the United States between 1980 and
2005. More houses have central AC while less
have window/wall units or no AC. More house-
holds have switched from just one refrigerator
to two or more. Almost all households now have
microwaves, up from just 14% in 1980. Looking
at television (TV) ownership, fewer households
have just one or two TVs and have switched
to having three or more. In fact, the average
number of TVs per household has increased
from 1.7 in 1980 to 2.7 in 2005 (U.S. Census).
Computers, which were not common enough in
1980 to include in the survey are now present
Space Heating
Air Conditioning
States, real expenditures on electricity have
Water Heating increased from $848 per household in 1978 to
Appliances
$995 in 20051 (Figure 7). Breaking the total
amount down by end use (Figure 8), real expen-
ditures for space and water heating are relatively
1995 2000 2005
(water heating) or declined (space heating) since
1978, hovering just below $100 (real 2000 dol-
lars). Expenditures on electrical appliances and
AC, on the other hand, have been on the rise.
In 2005, the average household spent $201 (real
2000 dollars) on electricity for AC, compared
with just $106 ten years earlier. Real spending
on electricity for appliances has increased by
nearly 20% since 1978.
Prices, residential demand, and household
expenditures for electricity have all been rising
at the same time. In many other sectors of
the economy, when prices go up, we may
see a demand responsewith demand either
declining or growth slowing. We do not seem
to be seeing this when it comes to electricity. In
the past, analysts have claimed it was hard for
consumers to react to electricity price changes
because electricity was used for necessities and
consumers did not have flexibility with how they
used electricity over the near-term. On the other
hand, a portion of the increase in expenditures
1. Real amounts are adjusted for inflation and are in
2000 dollars.
222 CONTEMPORARY ECONOMIC POLICY

FIGURE 6
Residential Appliance Trends in the United States, 19802005

100
1980 2005
90 1980
Percent of US Households 2005
80
70
2005
60 2005

50 1980 2005 2005

40
1980 1997
30 1980 2005 2005
2005
20 2005
1980 1980 1980
10 1997

0
C

AC

AC

rs

rs
to

te
TV

TV
av
lA

to

te
ra

pu
w
l

ra

pu
tra

al

ge

3+
N

om
ro
ge

1-
/W

om
en

ri

ic
ri

C
ef
w

M
C

C
ef
R
do

1
R

2+
1
in

2+
W

FIGURE 7 the summer? Better information about electric-

Real Energy Expenditures per Household by ity use could empower consumers to make better
Type of Energy, 19782005 decisions on energy use and possibly slow or
even reduce their demand.
1200 Controlling demand is especially impera-
tive in the current climate of tight supplies.
1000
Increasing demand strains the electrical grid
Dollars per Year

800 and requires us to build new power plants.

Natural Gas
600 Electricity According to NRECA, long-term capacity is
Oil/LPG
already inadequate and we will need new
400 transmission to maintain reliability (NRECA
200 2008). However, building new power plants
and transmission lines now takes longer and
0
1975 1980 1985 1990 1995 2000 2005 costs more than it did in the past because of
Year local opposition to new power plants and trans-
mission lines, rising costs of materials needed
for construction, pollution restrictions in regions
is due to new devices that are not necessities, as with already-poor air quality, and expectations
well as an increase in the size and energy use of for future limits on greenhouse gas emissions. If
the devices (like plasma TVs). demand continues to rise, the cost of new power
The increased price and demand for electric-
ity indicates an outward shift in the demand
curveor, in other words, a new-found toler- FIGURE 8
ance that consumers now have to purchase more Real Electricity Expenditures per Household
electricity even though prices are higher. It is by End Use, 19782005
possible that consumers are satisfied with this
shift in demand and feel that the ability to use 700
more and bigger devices is well worth the extra 600
charge on the monthly bill. However, given the
Real (2000) Dollars

500
lack of information about how much each appli- Space Heating
400
ance actually costs to use, it is also quite possible Air Conditioning
Water Heating
that consumers would act much differently if 300 Appliances

they had this information. Would people leave 200

their flat-screen TVs overnight if they knew the 100

minute-by-minute cost? Would they keep the 0
AC running when they left to go to work in 1975 1980 1985 1990
Year
1995 2000 2005
 BERNSTEIN & COLLINS: SAVING ENERGY THROUGH BETTER INFORMATION
plants could raise the price of electricity even
further.
IV. TWO ROADS TO IMPROVING ENERGY
EFFICIENCY
Residential electricity use is a large contrib-
utor to the strain on the nations electrical grid.
The residential sector consumes about 36% of
electricity in the United Statesmore than the
commercial or industrial sectorsand its share
has been increasing (EIA 2008). If we are going
to significantly impact demand for electricity in
the United States, residential use is a fertile area
to look for reductions.
Households may reduce electricity use
through two different mechanisms: (1) using
more efficient appliances, and (2) using appli-
ances less. How much electricity can we save
through each method? Brown et al. (2008)
examined the potential of using more efficient
appliances. The study found that we could
reduce electricity use in the business-as-usual
case (no major policy changes) in 2030 by
one-third and that the investment needed to
achieve these savings was modest enough to
yield a benefit-cost ratio of 3.5 (not including
the cost of policy implementation). The latter
optionusing appliances lessis a little more
complicated. Households could reduce electric-
ity use to zero, but their quality of life would
be significantly lower. The key is to find ways
to reduce use that do not have a huge impact on
comfort or standard of living.
Existing government policies aim to work
through each of these mechanisms to try to
lower demand in the residential sector. To influ-
ence consumer behavior, policy-makers design
demand-side management (DSM) programs to
both increase adoption of efficient appliances
and building practices and to reduce the load on
the grid during times of peak use. To achieve
reductions during peak hours, consumers may
either reduce their use (turning off lights during
peak times) or shift their demand to an off-
peak hour (waiting to run the dishwasher). To
encourage more efficient appliance purchases,
policy-makers implement appliance standards,
building codes, and rebates or subsidies for buy-
ing energy-efficient equipment.
Although existing DSM programs have made
a difference, they have not been enough to
curb the overall growth of residential demand.
Efficient lighting is still a small percentage of
total lighting in our homes and many people still
223
do not choose the most efficient appliances even
with rebates. If people had a better idea of how
much electricity each appliance used over time,
it is possible they would make different choices
both in the near term with which appliances to
use and in the long term with which appliances
to buy. While a review of the literature found
no studies on the latter, we present evidence of
the former in this paper.
V. REDUCING DEMAND THROUGH BETTER
FEEDBACK
One potential piece of the solution for con-
trolling the growth of residential energy use is
to provide consumers with more frequent and
detailed feedback on how much electricity they
are using in their homes. Feedback, in this
context, is household-specific information on
electricity use. The typical, monthly bill from
the utility is one type of feedback. By better
feedback, we mean more detailed and/or more
frequent consumption information apart from
the total monthly use and dollar amount owed.
Better feedback can range from technologi-
cally simplesuch as a more frequent billing
cycleto a more complex system of smart
meters and in-home displays showing real-time
energy consumption. The distinguishing feature
of smart meters is that they can collect and
communicate energy use data without needing a
manual meter-reader. However, the presence of
a smart meter will not necessarily mean that con-
sumers have an in-home display showing their
energy use. Both smart meters and traditional
meters can transmit real-time electricity use to
an in-home display, but they need the proper
equipment to do so.
We may refer to policies that provide feed-
back after consumption occurs as either direct
or indirect (Darby 2006). Direct feedback
is immediate and from a meter or other dis-
play monitor. Indirect feedback has been pro-
cessed in some way before reaching the user.
Examples of indirect feedback are more fre-
quent energy bills and enhanced energy bills,
which may include household-specific advice
for reducing electricity use, such as identifica-
tion of deviations from typical usage patterns
(EPRI 2009).
Several theories exist for the mechanism by
which feedback impacts electricity use. Accord-
ing to one behavioral perspective, humans are
imperfectly rational. That is, they may occa-
sionally behave in ways that are not the most
224 CONTEMPORARY ECONOMIC POLICY
beneficial to themselves. Such can be the case
with routine, habitual behavior. People perform
many everyday activities without reflection
including using electricityhabitually and ac-
cording to routines that they have developed
over time (Fischer 2008, translating Matthies
2005). Routines are functional in that people do
not have to think hard about each and every
decision they make. However, they may not
be the best way for an individual to behave
because either the person never considered the
optimal way to do something or the situa-
tion changed since the time the behavior was
formed.
A household may have at least three motiva-
tions for changing their energy use habits:
Financial (saving money on their monthly
utility bill),
Environmental (reducing their carbon foot-
print), and
Competitive (outperforming neighbors in
saving energy).
According to one theory, feedback works
through a three-step process of (1) learning
(change in knowledge), (2) habit formation
(change in behavior), and (3) internalization of
behavior (change in attitudes) (van Houwelin-
gen and van Raaij 1989). In the learning phase,
consumers use the improved feedback to see
how their consumption is specifically tied to
particular appliances and activities. They may
also learn that their consumption is high or
low compared to their neighbors or to histori-
cal use, triggering the competitive motivation
above. Part of the learning process is mak-
ing small adjustments in behavior to observe
through the feedback how the changes impact
daily, hourly, and minute-by-minute consump-
tion and utility charges. When consumers find
the changes favorable, they will form new con-
sumption (or purchasing) habits as part of Step
(2) above.
The third phase, internalization of behavior,
involves changing beliefs to match the new
behavior. For instance, suppose a person was
content to leave lights on because he or she did
not think it used much energy. Through better
feedback, he or she learned that the cost to
him/her was substantial and he or she developed
new habits of turning lights off. Finally, by
internalizing the behavior, he or she adopts a
new, disapproving attitude toward leaving lights
on to replace his or her previous attitude of
indifference.
Another consequence of our imperfect ratio-
nality is that how information is presented
can have as big of an impact on behavior as
what information is presented. For example,
researchers in the field of financial decision
making have found that people make differ-
ent decisions about retirement plans when the
same information is presented to them in differ-
ent formats (Choi et al. 2008). It is important,
therefore, to keep in mind that the way feed-
back is presented to consumers may impact their
response and that certain types of consumers
(depending on education, etc.) may respond bet-
ter to certain visual formats over others.
VI. MEASURING THE EFFECTS OF FEEDBACK
Literature reviews of feedback studies find
that several key attributes of feedback are gener-
ally associated with greater reductions in energy
use (Darby 2006; EPRI 2009; Fischer 2008):
Provided frequentlyStudies where feed-
back was provided daily or more often were
usually among the best performing. When feed-
back is provided less than daily, conservation is
not as high (with some exceptions).
Presented clearly, simply, and appealingly
When surveyed, consumers have responded
that they prefer a clear explanation of acronyms
and technical terms. For breaking down the com-
ponents of the total bill, respondents preferred
pie charts. They preferred vertical bar charts
for comparisons with other periods and hori-
zontal bar charts for comparisons with other
households.
DigitalComputerized feedback (as op-
posed to paper or verbal) with multiple viewing
options (cost, environmental effects, etc.) in
general showed the greatest effects.
InteractiveSome studies showed that
feedback was effective when it engaged house-
holds above and beyond simply showing energy
use. Consumers could interact through the com-
puterized display or by self-meter reading.
Customized for the specific household
Studies have shown that providing environmen-
tal information may be just as effective as
cost information. While there may be no rea-
son for separating the two types of information,
researchers recommend tailoring the type of
feedback information to the norms and motives
of the target audience.
Able to be broken down by appliance
Some of the biggest impacts have been observed
 BERNSTEIN & COLLINS: SAVING ENERGY THROUGH BETTER INFORMATION
when feedback includes a breakdown of electric-
ity use by appliance. This level of detail informs
consumers about which appliances are efficient
and which are energy hogs. It also allows them
to see how much electricity appliances use in
standby mode and can encourage them to
unplug unused appliances. From a mid- to long-
term perspective, disaggregated feedback could
encourage households to purchase appliances
that are more efficient (though none of the stud-
ies in the literature addressed this effect).
Besides the six characteristics of successful
feedback listed above, the literature reveals that
the addition of other factors can yield further
reductions in energy use. These factors include:
goal-setting (e.g., reduce energy use by 20%),
advice for reducing electricity use, and the abil-
ity of the display mechanism to alert residents
when usage is high or unnecessarysuch as
when a home uses air conditioning after the out-
side temperature has dropped enough to open
windows (see, for instance, IEA DSM 2005;
McCalley and Midden 2002; Nielsen 1993;
Seligman et al. 1978).
Consumers have stated through surveys that
they prefer feedback that is given with a mean-
ingful standard of comparisoneither histori-
cal use or peers use (Egan 1999). However,
the effects of this type of comparison feedback
have not always been favorable as studies some-
times find no net effect on consumption (Fisher
2008). Researchers call this the boomerang
effect: high users may lower their use to con-
form with the average user, while below-average
users increase their consumption because they
feel like they are doing well and have room
to use more energy. One way to counteract
the boomerang effect is through normative mes-
sages. Schultz et al. (2007) included happy faces
with feedback for below-average users to elim-
inate the boomerang effect in their experiment.
Authors of several studies presume that the
duration of feedback provision will also have
a positive impact on conservation (EPRI 2009;
Fischer 2008). One cites anecdotal evidence that
feedback lasting longer than 3 months will con-
tribute to habit formation and the effects will
persist for a longer time after the feedback
is removed (Darby 2006). However, empirical
studies have not found a connection between
feedback duration and long-term effect and
some even measured an increase in conser-
vation once feedback was removed (Wilhite
et al. 1999).
225
Figure 9 shows the range of energy savings
for the major studies in the literature that deal
with electricity feedback. The studies can be
quite different from one anothersome studies
may have daily, computerized feedback while
others include a high-use alarm. However, the
figure can at least give an idea of the size and
prevalence of conservation effects found in the
literature.
The most successful feedback mechanisms in
the literature have at least two of the six bul-
leted features listed above and incorporate one
or more of the external factors. The studies that
showed the largest reductions in electricity use
(27% and 22%) were European studies with low
sample sizes (Jensen 2003 [best case]; Staats and
Harland 1995). Staats and Harland (1995) estab-
lished an EcoTeam Program, forming small
groups of neighbors in the Netherlands who
received feedback on energy use and exchanged
ideas to achieve a stated goal of 30% energy sav-
ings. Jensen (2003) used real-time feedback in
blocks of apartments in Copenhagen, Denmark,
with one of the apartment blocks achieving a
22% reduction. Both studies allowed consumers
to compare their electricity use with that of
nearby residences (here, the comparison feature
seemed to work) and also provided them with a
quarterly energy use report.
Nine other studies with large effectsthough
generally with low sample sizesshow reduc-
tions from 13% to 18% (Becker 1978; Bittle
et al. 1979; Hayes and Cone 1977; Midden et al.
1983; Mountain 2007; Salt River Study from
EPRI 2009; Seligman et al. 1978; Ueno et al.
2005; Winett et al. 1978). Six of the studies were
conducted in the United States. A number of the
studies focus on frequent feedback and appli-
ance breakdowns, while others give just basic,
daily feedback but combine it with advice or a
reduction goal for the household.
A widely cited survey of the literature (Darby
2006) reviews studies on feedback and distin-
guishes between direct and indirect feedback. It
finds savings in the range of 5%15% for direct
feedback and 0%10% for indirect feedback.
The review found that utilities could improve the
effectiveness of feedback by providing advice
and information in conjunction with the data.
Another recent review of the literature found
that average energy savings ranged from 1%
14%, with most of them showing savings
between 5% and 12% (Fischer 2008). The
review found that an implicit or explicit moti-
vation must exist as a precondition for feedback
226 CONTEMPORARY ECONOMIC POLICY
FIGURE 9
Results from the Literature on Feedback Experiments and Pilot Studies
to work. (Implicit motivations could be sav-
ing money or helping the environment, while
explicit motivations might be a reduction goal
or a competition with similar households.)
The variation between studies in the effects
of feedback is partly due to household, cli-
mate, and demographic characteristics. Some
houses use gas to do work that other houses
do with electricity, such as cooking and hot
water heating. Regional climate differences
will also impact reductions in use, as the
same type of house would have a different
demand in a hot desert climate than it would
in a cool, temperate climate. However, most
of the studies did control for climate differ-
ences. Finally, certain demographic characteris-
tics have been associated with different levels of
effects from feedback. Some studies have found
that households with higher income, higher edu-
cation levels, and higher electricity use show
greater reductions when provided with feed-
back.
VII. FEEDBACK CAN ALSO ENABLE
LOAD-SHIFTING
Reducing electricity use is one goal of feed-
back, but another benefit can be shifting use
from peak hours to off-peak hours. This shift
can smooth the load curve throughout the day
and allow us to forego constructing expensive
new power plants just to meet peak demand for
a few hours a day. A number of pilot stud-
ies have used a combination of feedback and
real-time pricing to shift electricity use to off-
peak times. Peak use reductions have a fairly
wide range of success, depending mainly on
the difference between peak and off-peak prices
and the ability of home thermostats to respond
automatically to shifts in peak pricing. When
peak prices are high and residents can pro-
gram automatic price responses, reductions in
peak demand have been measured as high as
30%40% (IEA DSM 2005). Generally, some
of the peak use reduction translates to an overall
reduction in energy use (turning off lights, etc.),
while some of it simply shifts to off-peak hours
(washing clothes, etc.).
VIII. THE POLICY HORIZON
We are making gains on the policy front
toward encouraging the provision of feedback.
These gains are part of the push for a smart
grid, which is the modernization of the current
grid to allow more communication and coordi-
nation during distribution of power from suppli-
ers to end users. Benefits will include the ability
to read meters remotely, improved system relia-
bility, enhanced outage detection, and the poten-
tial ability for the grid to automatically adjust
appliance settings in dwellings to reduce peak-
ing. The Energy Independence and Security Act
of 2007 established official U.S. policy for sup-
porting the Smart Grid, including the provision
to consumers of timely information and control
options. On the state level, in California, SB
17 became law on January 1, 2010 and ordered
the states three investor-owned utilities to sub-
mit Smart Grid Deployment Plans by July 1,
2011. The deployment plans must [promote] a
Smart Customer who is informed, empowered
 BERNSTEIN & COLLINS: SAVING ENERGY THROUGH BETTER INFORMATION
and able to use electricity efficiently and in ways
that promote environmental goals.
IX. A NEW PARADIGMTAKING CONTROL OF
OUR ENERGY DESTINY
We learn a number of lessons from these
studies. First, the studies are insufficient for
really telling us what we can achieve from
providing better information to consumers. The
studies suffer from low sample sizes and lim-
ited feedback technology. The lack of large and
diverse samples in the studies suggests that a
more comprehensive analysiswith large sam-
ple and control groupswould be informative.
In addition, most of the feedback mechanisms
that were studied used only a subset of the six
key features noted above and used relatively
unsophisticated feedback technology. Generally,
the studies that showed the greatest impacts also
provided consumers with the most information,
which gives us an indication that if you could
provide usable and frequent information, con-
sumers could save significant amounts of elec-
tricitywhere a 20% reduction is not an unrea-
sonable expectation.
Feedback on electricity use can have impacts
on human behavior in both the near- and long
term. First, it can impact habitual, repetitive
behavior such as turning off lights or unplug-
ging appliances. Second, it may affect decisions
on appliance purchases, which tend to be infre-
quent, mid-to-long-term decisions as opposed to
everyday behavior. As consumers notice from
feedback that certain appliances are energy hogs,
they can look to replace them with more efficient
ones. In addition, existing subsidies for energy
efficient appliances would be more effective,
because consumers are more aware of exactly
how much each appliance costs to operate.
The old paradigm for energy use is one in
which consumers cannot connect their behavior
to their use of energy. At the end of a month
they get a bill and have no idea what led them
to that bill. This does not promote efficient use
of energy. The new paradigm for energy use
is one in which households are more aware of
their electricity consumption. Consumers know
the power demand for each appliance in the
house and how the efficiency for each appliance
compares to Energy Star models. They know
how their energy use compares to the same
time from last year and how it compares to
their neighbors in similar households. In a new
energy paradigm, consumers take tighter control
227
over their day-to-day energy use and make more
informed decisions. Indications are that this
would lead to more efficient use of electricity.
If a feedback device could produce the right
set of information in a manner that consumers
can understand, and give them controls that
are easy to manipulate, the literature suggests
we could achieve 20% energy reductions. This
alone can buy us a considerable amount of
time to plan for the next generation of energy-
using and energy-producing devices, reducing
the need for new investments and allowing pol-
icy and technology to catch up to our needs
for reducing emissions and improving services.
This level of energy savings could be substantial
and could have a positive impact on reliabil-
ity, cost of electricity, and climate change. If
these savings could be achieved, and we could
place smart equipment in all residences by 2030
we could potentially get household energy con-
sumption back to 1990 levelsa savings of
3 quad BTUs. Though this is merely a rough
approximation in need of further analyses, the
potential for this technology is real.
X. CONCLUSION: WHAT SHOULD HAPPEN NEXT?
Despite the studies that have been completed,
there is much that has not been adequately
addressed regarding the effectiveness of feed-
back. A 2009 report from the Electric Power
Research Institute (EPRI) highlights the major
gaps in the literature. One topic that has not been
well addressed is the form that feedback should
take to be most effective, specifically, examining
which design approaches, layouts, and metrics
are most effective in encouraging conservation
behavior. Most of the studies thus far have uti-
lized feedback displays with limited capabilities
and the full range of possibilities that are cur-
rently available have not been adequately tested.
Another question that remains to be answered
is which forms of feedback will show contin-
ued reductions in household electricity use over
time. Some studies have found that feedback
effects will not persist, but these studies tended
to provide feedback for a finite period of time
and then measure persistence after the feedback
was removed. Now that feedback technology is
becoming available on a wider scale, the new
question is not whether the energy use reduc-
tions will persist but how to adjust feedback to
maintain the reductions.
The literature does provide us with hopeful
signs for improving efficiency. If feedback to
228 CONTEMPORARY ECONOMIC POLICY
consumers is provided with easy to understand,
frequent, interactive, and customized informa-
tion, there is a very good chance consumers will
use less energy. This will mean lower energy
costs for consumers and fewer emissions in the
future.
There is an important role for the govern-
ment in this effort. The first is easyfunding
the studies to assess the impact of information
on consumer choices. Studies should implement
solutions in control groups and compare choices
that consumers make under different informa-
tion environments.
However, we do not need to just wait around
for these studies to finish. There is enough evi-
dence that we can have an impact on consumer
use of electricity with better information. Gov-
ernment policies could be designed to encourage
utilities to do more with their smart meters than
they are currently doing. Many utilities today are
installing smart meters at an accelerating pace.
For the most part, the smart meters are only there
to provide better and more easily accessible data
for the utilities themselves, with little or no plans
to provide that information to consumers. Public
utility commissions should be creating an envi-
ronment that encourages utilities to bring that
information back to consumers in a manner that
will encourage efficiency. It does not have to
be real timebut it can be more often, and
more meaningful than a monthly bill. Utilities
ought to be able to earn a return on invest-
ments in smart meters, when they also create
the opportunities for consumers to benefit from
the information as well.
The fastest and cheapest way to meet our
future energy needs, while simultaneously deal-
ing with our environmental concerns, is to use
energy more productively. New technologies
provide an opportunity to accelerate efficiency
in our homes and the potential is significant. If
we can provide households with better feedback,
they could make more efficient choices. How-
ever, we still really do not know how much,
and utility planners will have a difficult time
banking on those savings to materialize with-
out further studies. Utilities and policy-makers
will need better information so that these sav-
ings can become a secure part of future plans
and we can delay the need for new capacity and
new infrastructure.
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