Improving Infrastructure Service Quality with Smart Technology: Evidence from Electricity Grid Investments in Texas

“Electricity outages are on the rise in the U.S. due to climate change and an aging infrastructure, creating substantial economic and social losses. We provide some of the first empirical evidence of how advanced metering infrastructure—a communication network comprised of smart meters and data management systems that provide real-time information on electricity production and consumption—enhances grid reliability. To do so, we use granular data on power outages and implement a difference-in-differences research design to study smart meter rollouts in Texas. We find that they do indeed improve reliability, and the effects are economically meaningful. On average, the duration of outages decreases by 6 percent. While there is no effect on outage frequency on average, this masks substantial heterogeneity. Outage frequency and duration decrease by 7 and 12 percent, respectively, when a high proportion of meters are “smart”. We also show that the effects are overwhelmingly driven by utilities leveraging the technology rather than consumers. When utilities are able to execute load control by shutting down customers’ equipment on short notice, smart meters reduce outage duration by 55 percent and frequency by 16 percent, whereas providing consumers with easy access to data via a web portal has little to no effect. Our findings suggest that policy enabling utility-side capabilities is important for smart technology to have the greatest impacts on reliability.”