Putting consumers in charge of their electricity rates

As Amory Lovins reminded us decades ago, the cleanest source of electricity is the "negawatt" -- the electricity we don't use as a result of conservation and efficiency measures. Demand Side Management (DSM) is the technical term for the toolbox that contains a wide array of gadgets and strategies designed to help electricity providers and consumers manage their demand for power and in some cases save money in the process. (GW)

Electricity: The New Math

'Smart' Meters Know When You're Cooking, Cleaning; How About Dinner at 4?

By Rebecca Smith
Wall Street Journal
May 18, 2010

One of modern life's most durable features—fixed-price electricity—is slowly being pushed to the sidelines, a creeping change that will influence such things as what time millions of Americans cook dinner and what appliances they buy.

Driving the change is the rollout of so-called smart meters, which can transmit data on how much power is being used at any given time. That gives utilities the ability to charge more for electricity at peak times and less during lulls. Spreading out electricity consumption more evenly across the day leads to more efficient use of power plants and lower emissions.

Advanced meters "put consumers in charge of an expense that's often thousands of dollars a year and in ways that were never possible before," said John Geary, vice president of innovation for TXU Energy, a Texas power seller. "They won't be flying blind anymore."

Utilities, economists and even behavioral psychologists are still trying to figure out the best way to convince consumers to cut their power at the right time. They worry that folks will be in for a jolt if they suddenly are exposed to wildly fluctuating prices—possibly prompting a smart-meter backlash.

But if prices don't change, it would undercut the purpose of rolling out the costly smart meters in the first place.

Maxing Out

"Regulators are conflicted about whether to protect people from volatile prices or let people experience them so they change their habits," said Stanford University economist Frank Wolak, an expert on energy markets.

Consumers have mixed feelings, too. Some say it feels coercive. Others say it is needed to cut down on the emission of greenhouse gases.

Houston-based Reliant Energy Inc. started offering a rate plan this year that has two prices for electricity in the winter and three in the summer. The highest price occurs from 4 p.m. to 6 p.m. in the summer.

Dennis Banks, a retired computer database designer, signed up for the new Reliant plan because utility bills for his 1,350-square-foot home in Richardson, Texas, have run as high as $600 a month. He has cut his bills in half, he said, by cooking dinner before 4 p.m., when higher prices kick in, and running his electric tools for a new furniture-refinishing business when juice is cheapest.

"I've had months where the power bill is as low as a hundred dollars," he said. "That's a first."

He likes the weekly emails he gets from Reliant that tell him how much power he has used and projecting his monthly bill. "If I need to squeeze my nickels, I change what I'm doing," he said.

Although Mr. Banks likes the program, he thinks it may be hard for working families with inflexible schedules to adjust as he has, especially without home automation.

Other people fear the rate plans, if they are pushed out too fast, could hurt vulnerable members of society.

"How can you expect a frail, elderly person to turn down the air conditioning on a hot day to avoid high prices?" said Irwin "Sonny" Popowsky, Consumer Advocate for Pennsylvania, a state that is moving more slowly toward dynamic pricing.

Currently, some utilities have completely flat rates, while others charge tiered prices to discourage heavy consumption.

In either case, old-fashioned meters typically keep a running tally of usage and are read once a month.

The new system uses digital meters to charge prices that vary during the day.

Though fewer than 10% of U.S. homes have smart meters now, the Department of Energy is funding efforts that will boost that number to nearly a third by 2015. The majority of homes in California and Texas, the two most populous states, will have smart meters by 2013.

Smart meters lie at the heart of efforts to get Americans to use less electricity. Power generation accounts for about 40% of greenhouse-gas emissions in the U.S. A 2009 federal study found that smart meters could help cut peak electricity use by 20%.

In California, power plants totaling 30,000 to 35,000 megawatts of capacity are needed on a typical day. But 50,000 megawatts or more are needed on hot days. That forces generators to turn on their least efficient and most polluting plants to meet demand. In New York, average demand is 42% less than peak-time demand. Flatten peak use, experts say, and system costs drop, as does pollution.

In Davis, Calif., schoolteacher Jean Salk and her family get power under a plan, similar to the one in Texas, that is offered by her utility, Pacific Gas and Electric Co. Fifteen times a year, it can notify her that it is jacking up the price of electricity to 60 cents a kilowatt hour from 2 p.m. to 7 p.m. That is about five times the normal price.

In exchange, she gets a discount on electricity the other 350 days a year. Her family, which includes two teenagers, kept an eye on the energy-guzzling air conditioner last summer on the days with peak prices.

"We'd go as long as we could without turning on the air conditioner," she says. "I remember one day my son announcing, 'Half an hour to go!' We sort of liked the challenge."

Appliance makers like Whirlpool Corp. and General Electric Co. are working on products that can respond to price changes by switching to energy-saving modes—for example, a clothes dryer that can decrease its heat but keep tumbling and refrigerators that can delay its ice-making function.

Some utilities are toying with the idea of using cash rebates instead of high prices. Mark Spellmann, a psychologist who has worked for Reliant Energy, thinks rebates send the message that utilities are uncertain they're doing the right thing. Utilities shouldn't soft-pedal change that's coming, he said, but should explain why change is needed.

His suggestion: "Show customers a nasty, belching power plant and say, 'Don't make me turn this on!' "