Consumers bought into conservation after the energy shocks of the 1970s and early ’80s. We not only turned down thermostats and insulated the attic, we embraced government intervention and technological change. Federal energy standards brought forth more efficient refrigerators and air conditioners. Under new building codes, homes and offices became cheaper to heat, cool and light. Rebate programs helped people buy better light bulbs and appliances. Electricity use grew more slowly than the economy did.
But in the later ’90s, with prosperity in full swing, demand began catching up with supply. Consumers stopped worrying about their energy bills. High-tech businesses gobbled megawatts for lunch. Utilities and states–California among them–closed or scaled back their conservation programs. We’re all free-market maniacs now. The markets were supposed to create efficiency, unaided.
But they haven’t. So here we are, with demand exceeding supply in California and other states at risk. We need to spread the available power around, while waiting for new plants to come online. So a market-based question has entered the conservation debate. Would usage change if power were priced in a different way?
Cheap hours: Most consumers don’t realize that the wholesale price of power changes at various times of day. Prices spike when demand is high, say on summer afternoons, and fall at night when most offices have closed. But most of us pay a constant price per hour, whether we use expensive hours or cheap ones. So we have no reason for conserving power during hours of high demand.
Market-based pricing aims at getting you to think twice before you use power during those expensive peaks. The three main ideas:
Changing the fixed price. Many utilities today charge more in the hot summer months than in the winter months. Georgia Power goes further–raising your summer price as you use energy more. In the winter, your rate for extra kilowatt hours declines.
Voluntary time-of-use programs. You’d pay the most for power during weekday hours and the least on weekends and overnight. Oregon will introduce a statewide program in October. Niagara Mohawk in Syracuse, N.Y., has 4,000 consumers on time-of-use, probably owners of large, all-electric homes. Ahmad Faruqui of the industry’s Electric Power Research Institute estimates that a well-designed program could cut residential peak demand by about 2.5 percent. In California, that could save 12 percent in summer energy costs.
So far, however, time-of-use hasn’t amounted to much. Niagara Mohawk doubts that its program can expand. Gulf Power in Pensacola, Fla., has only 12 customers signed up. Bottom line, the discounts aren’t big enough to persuade busy people to run their washing machines at night. Saving $20 or $30 isn’t worth the hassle, says Mike O’Sheasy, Georgia Power’s manager of product design.
Real-time pricing. Here, the utility varies your price per kilowatt hour during the day as its own prices change. Using a “smart meter” and “smart thermostat,” you could program your water heater or air conditioner to turn off automatically when power costs the most. Many businesses already pay on real time.
More control: How consumers like this idea remains to be seen. Georgia Power tried real-time pricing 12 years ago and dropped it. But Gulf Power rolled out newer technology last year and thinks it has a hit. About 1,500 customers are already online with 400 more on the waiting list–even though the smart meters cost them $4.53 a month. “People like the control over their power bill,” says Gulf’s Margaret Neyman, general manager of marketing. She says that customers are saving 15 percent, which more than covers their participation cost.
Puget Sound Energy in Bellevue, Wash., has enrolled some 420,000 customers in a smart-meter program. They’re getting reports showing when they use power the most and what it costs to deliver. Right now the purpose is purely exhortational. Puget hopes customers will shift some of their usage to low-cost hours. But the utility hopes to offer real-time pricing soon. Residential rates for peak kilowatt hours may be one third more than the bargain price, says Gary Swofford, chief operating officer.
Consumer and environmental groups generally haven’t supported real-time rates. They blame market manipulation by power sellers for part of the problem, and don’t want them to profit from it. But blackouts and brownouts amount to a sales pitch for suspending clean-air rules and reopening old, polluting plants. Greenies need to step up to the plate. “A lot of them would like to soak industry for rising power costs, but that’s a prescription for not getting anything done,” says Ernst Habicht, a consultant in East Setauket, N.Y.
Price signals are only one way of cutting consumer demand in peak periods. We also need more of the energy-saving initiatives that fell out of favor in recent years. They’re run by a utility or state and normally financed by small charges on your utility bill.
Conservation “supplies” energy at a fraction of its retail cost–up to three cents per kilowatt hour, compared with 8.26 cents for residential bills overall, says consultant Martin Kushler of the American Council for an Energy Efficient Economy. The programs teach you how to lower your bills, promote appliances that carry the Energy Star label (testifying to low power use) and offer rebates for making energy-smart choices, such as installing compact fluorescent bulbs. Check your utility’s Web site or energyguide.com.
The energy bubble may last a year before prices settle at higher levels. The more we conserve, the shorter the panic will be.
