To Save Energy, Utilities Tap into Our Competitive Instincts

When it comes to energy conservation, our competitive instincts to “keep up with the Joneses” could be a big help. A project underway in my California neighborhood, for example, is employing insights from behavioral psychologists to encourage residents to save energy.

Motivated by energy efficiency goals set by the federal, state, and local governments, the City of Palo Alto, Calif. recently began including Home Energy Reports in residential utility bills. Each report compares a household’s energy use with their 100 closest neighbors in homes of similar sizes, and also provides targeted energy conservation tips.

Invented and implemented by the energy efficiency and smart-grid software company OPOWER, this technique is just one example of the ways that behavioral psychologists are collaborating with utility companies in real-world experiments to understand how information and messaging can affect human behavior.

My personal experience with OPOWER’s approach has been powerful. In my family’s first electric bill, we ranked as the 23rd-most-efficient household in the neighborhood, based on the previous month’s electricity and natural gas use. My husband called me over to look at the one smiley face, and our grade of “Good”, as judged by OPOWER.

Within seconds, I knew one thing and one thing only: We needed to be “Great.”

My first energy report. It shows that my household used less electricity than most in our neighborhood, but our natural gas use was about average. My suspicion was that our old house was letting the gas-generated heat leak right out of the windows and floorboards.

I ran out to the garage and got the bag with our caulking gun — the bag that had sat unopened in the garage for the last two years. I had bought it during one exceptionally cold night shortly after we moved into our rented 1940s bungalow. Perhaps it got warmer soon thereafter. Or maybe the fatigue of daily life overcame my determination to reduce the amount of heat escaping from the house.

Whatever the reason, I never opened that bag — that is, until I found out I was not excelling at energy conservation.

My husband and I spent the next two hours caulking the windows and stuffing paper into floorboards (which I am not sure is a good idea, but definitely sealed up the drafts). Then, satisfied and curious, we patiently waited for our next report. And to our great relief, we were now classified as “Great,” having moved up in the standings to become the ninth-most-efficient house among our neighboring peers, and saving about $50 per month relative to the average household.

Clearly, I am the type of person this kind of report appeals to — an innate competitor, and eager to save on my energy bills. In fact, research has found that this technique is much more effective with certain types of people than others. So the trick for any utility is to determine how to target those customers most likely to respond to it, especially if the program’s budget limits the breadth of the program.  

Sacramento, Calif. has been experimenting with OPOWER’s Home Energy Reports since April of 2008. Bruce Cenicerosprinciple demand side planner at the Sacramento Municipal Utility District (SMUD), told me that in the first year of the program, Sacramento residents reduced their energy use by two percent on average, which corresponded to a reduction of approximately 200 kilowatt-hours of electricity (kWh) per year per household.

In total, SMUD estimated the program has saved 14.2 gigawatt-hours per year, or enough to power about 1,000 homes for one year.  Considering these savings come from just a tiny portion of SMUD’s customers — about 35,000 homes, or five percent of the service area — the energy savings could be quite large if the program were expanded. Currently, however, there is no budget for expanding the program, which costs about $10 extra per costumer per year.

Why would an energy company want to help customers use less energy anyway, especially if it would cost the company money to implement a program like this?

While Andrea Hart, utility account representative for the City of Palo Alto, told me they decided to work with OPOWER while seeking ways to meet energy efficiently mandates, Ceniceros said it was in the utility’s economical interest too.

“SMUD’s incentive to do this is that we can meet future growth in electricity demand more inexpensively through energy efficiency and conservation than by building new power plants or purchasing electricity from the wholesale market. Our marginal cost of electricity from these sources is around 7 cents per kWh, while we are forecasting that the Home Electricity Reports will cost less than 4 cents per kWh when we target customers most likely to save [energy],” he said.

Hunt Allcot, an economics professor at New York Universitytracked 17 utilities that use the OPOWER program. He found energy savings ranging from 1.1 to 2.8 percent relative to what energy consumption otherwise would have been. His research stresses the need for targeting or “profiling” customers to get more significant savings out of the program.

Ceniceros was sensitive to the fact that neighborhood comparisons are not going to work with everyone.

SMUD’s surveys reveal that most people like the energy reports and find the information useful. But 19 percent of report recipients stated that they did not like the reports, and some found them paternalistic or judgmental. He says the challenge is figuring out how to segment the customers and target messages.

“We’ve done a lot of work to improve the receptivity of our message. Trying to make sure it doesn’t seem like a moral judgment. But there are some people out there that will see it that way no matter what we do,” he said. “We are interested in finding another way to connect with these people without offending them. Talking about how saving energy can be patriotic because it reduces dependency on foreign oil, or how it can reduce your energy bill.”

Research suggests there are factors, like high-energy use, above average education or income, that predict whether a Home Energy Report is likely to inspire significant energy savings.

Allcot argues that if utilities can target the reports to households that exhibit these factors, it could make such programs more cost-effective.

SMUD is doing exactly that. In their most recent modification, two years into the program, they are phasing out randomly selected recipients and replacing them with a new set of households that are expected to be more receptive. Also, SMUD will continue to track how energy use changes in the group that no longer receives the reports. 

Does energy use rebound to where it had been after the program stops? Or is there a lasting effect?

A schematic of the experimental approach municipal utilities use to assess the effectiveness of energy efficiency programs.

If the changes are primarily behavioral, like paying greater attention to turning off lights and turning down the thermostat, perhaps without the nudge provided by the monthly Home Energy Report, users will lapse. Alternatively, if changes are structural, like installing energy efficient appliances and putting electronics on timers, the savings will probably last.

My hunch is that without the constant prompting, some of the savings may slip. We need to know whether we are keeping up with the Joneses for these programs to work.  

As one of my neighbors wrote to me in an email, “I LOVE the ranking system. Otherwise, I have no idea how we do compared to our neighbors.”

As for my household, we continue to receive our reports every other month, and since that first report, we’ve continued to be “Great”, holding steady at about tenth place.