Can Digitalization Improve Public Services? Evidence from Innovation in Energy Management

Electricity grids form the backbone of modern economies, but the utilities responsible for maintaining them face new energy management challenges associated with both aging infrastructure and climate change. Growing evidence suggests that digital technologies and data-driven decision-making may improve firm performance. However, existing work focuses on the private sector. Organizations providing public services have different incentives and constraints. In this paper, we narrow this gap through a study of the U.S. power sector. We construct a rich utility-level data set and estimate the effects of “smart” meters on electricity losses, a key indicator of system and utility performance. Implementing an augmented staggered difference-in-differences design, we find that electricity losses decrease by 4-7% following smart meter deployment, on average. Utilities’ annual revenue increases by 1-2%. We show that the underlying mechanisms relate to changes in energy management. Consumption measurement and billing accuracy improve, as indicated by an increase in sales, giving utilities a clearer understanding of the system to enhance decision-making. Utilities invest in complementary organizational capital that is important for fully realizing the benefits of digitalization, such as hiring “quants.” They also offer new products, like demand response programs, which attenuates the increase in sales but does not drive the reduction in losses. Power outage duration declines, suggesting that utilities use smart meters to improve reliability by restoring service faster after disruptions. Outage frequency remains unchanged.