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Demand Control

Chances are if you knew what time of day power was the most expensive, and could pay for power only when you use it, you’d use a lot less “peak time” - read expensive - energy. Now federal law says you have to be given that option. Contact your local utility program and tell them you want time-of-use pricing and smart metering.

Demand Response or “Smart Metering”

A little known provision of the 2005 federal energy bill could help you save significantly on your electric bill. This provision, which deals with demand-response, speaks to a crucial component of the Galvin Electricity Initiative’s vision for a Perfect Power System because it offers consumers choice and transparency and in doing so promotes efficiency.

Demand response goes by numerous names including smart metering, dynamic pricing, time-of-use pricing, real-time pricing and hourly pricing.

Here’s how it works: The price your utility company pays for power on the wholesale market varies depending on supply and demand. When utilities are competing for a limited amount of available power the price rises accordingly. In fact, wholesale electricity prices fluctuate every hour. For example, your utility company pays more for the power it buys on a hot August afternoon when everyone is running their air conditioners at full blast than it does at 2 a.m. on a temperate spring morning when few people are using any appliances. Some utilities offer their customers the option to pay for electricity the same way, allowing them to control their electricity bill by understanding exactly what they are paying for and when. This system is generally known as time-of-use or dynamic pricing. But most utilities simply lump all the costs together and charge customers based on an average of what they pay wholesale.

Now, thanks to the Energy Policy Act, all utilities have to offer customers both the option to pay for exactly what they use and the equipment to make this possible. Utilities were supposed to have the program available within a year after the bill’s enactment in August 2005.

The catch is, you have to ask. While states are required by the new law to study the feasibility of changing all their customers over to time-of-use pricing, they are currently only required to provide this rate structure upon customer request.

There are a number of reasons why you should consider making that request. While how much you save depends on what changes you choose to make in your electricity use, the savings can be significant. For example:

  • Community Energy Cooperative of Chicago’s demand-response program saved its 750 residential customers an average of 19.6 percent in 2003.
  • Pacific Gas and Electric has offered time-of-use pricing since 1982. As of the early 1990s, 80 percent of participants were saving $240 a year through the program.
  • Customers participating in a demand response program in Florida in 2002 paid 11 percent less in electricity bills than customers who did not participate.
  • Several studies estimate that widespread adoption and use of demand response could save electricity customers and our economy between $10 and $19 billion a year.

That’s in part because utilities often build new power plants and lines solely to have enough capacity to meet the demand for power when it is at its very highest — only a few days, or even hours, per year. The cost of building this capacity is passed on to the consumer in the form of higher rates. Widespread use of demand-response systems or time-of-use pricing would encourage consumers to cut their energy use at peak times and therefore make it unnecessary to build new infrastructures.

Additional savings would come from a reduction in prices in wholesale power markets. Wholesale prices rise when supplies are short because of heavy demand at peak times a few days every year. A reduction in demand would eliminate the shortage and therefore reduce wholesale prices for everyone.