Every Consumer Benefits from Small Reductions in Peak Demand

Michael Giberson

The Philadelphia Inquirer ran an excellent story about the PJM electric power market, market performance on high demand days, and the growing interest in managing demand by engaging consumers.


It was at 4 p.m. last Aug. 2, toward the end of a midsummer heat wave, when the Philadelphia region’s power-plant fleet began paying some of its biggest dividends of the year.

The airport temperature peaked that Wednesday at 98 degrees. By midnight, the region’s power system would set a record for daily electricity consumption: 144,796 megawatts, 80 percent above average demand. And for the single, sweltering hour from 4 to 5 p.m., electricity that may have cost as little as $10 a megawatt-hour to generate fetched as much as $573.10 per megawatt-hour for its producers, 10 times the average price.

If you turned on your TV that day while you microwaved your dinner, you probably didn’t think about the power you were buying, let alone what it cost your utility to purchase it on your behalf. Virtually all consumers and most businesses pay a flat-rate price for electricity, leaving them free to be unaware of its underlying cost.

As part of his “Energy Independence Strategy,” Gov. Rendell wants to change that equation.

A key element of his plan would require all the state’s utilities to install computerized “smart meters” in every customer’s home or business, so that all electricity users will be able to see the real cost of power at peak-demand periods.

A PJM staff study found that demand-side management saved electricity users $650 million during the first week of August 2006, when demand soared. On Aug. 2 alone, it said, voluntary cutbacks in usage saved $230 million.

The cost? PJM said payments to customers who curtailed usage, which are pegged to the hourly clearing price for buying spot power, totaled $5 million for the week.

“The key is that small reductions in peak demand produce large reductions in peak price for all customers,” Hanger said. “Every customer benefits, whether they are shifting demand or not, because the whole market price falls.”