Pricing and Technology Combine To Help Consumers Manage Energy Costs

Lynne Kiesling

Tuesday’s Wall Street Journal had an article by Rebecca Smith that discussed some of the most innovative residential electricity service offerings in the country. She accurately points out how the combination of dynamic pricing and innovative end-user technology can empower residential customers to observe their actual electricity use, control their own behavior, and manage their energy costs without too much time and effort:

Moving beyond traditional rebate programs, utilities are putting sophisticated tools in consumers’ hands, such as online calculators, advanced electric meters, in-home displays, remote-control devices and innovative pricing plans. Some consumers say they’re changing their energy habits as a result, a task that can be time-consuming but which many people say they find rewarding.

Ms. Smith discusses the residential real-time pricing program at ComEd in northern Illinois, which is the result of state legislation requiring a residential real-time rate in the default retail rate tariff and is an outgrowth of the enormously successful three-year Energy Smart Pricing Plan pilot in northern Illinois, about which I have written extensively over the course of the program.

One of the interesting features of the ComEd residential RTP product is their WattSpot website, which does something very, very simple and very, very effective: at the top of the page it reports the current residential RTP. When I first checked the site this morning at 8:15 the price was 3.7 cents/kWh; just now, at 10:15, it is 4.2 cents/kWh (it’s a calm, temperate, beautiful day here in Chicago, so prices are low). Then if you click on the hourly electricity prices link it will show you a graph of actual prices vs. the predicted day-ahead hourly prices; the graph shows an anticipated high price of about 8 cents/kWh at 4:00 this afternoon. With just this small communication of price information to the consumer, she can plan her energy use:

On a late June day, with temperatures in the mid-90s, power prices were expected to range from a low of 4 cents a kilowatt hour at 3 a.m. to a high of 10 cents by 4 p.m. As a result, Ms. Hennelly [a participant in the plan] said she’d probably run the dishwasher overnight and “pre-chill” the house in the wee hours, then let the temperature gradually drift up as prices rose. “I guess it’s the wave of the future,” she says. “It’s worked as far as saving money, but it’s taken a lot of adjustments on my part.” The family’s utility bill for their 3,000-square-foot home has dropped about 12%, or $20 to $25 a month, under the program.

Ms. Smith’s article also discusses air conditioning cycling (a form of direct load control) programs at Southern California Edison and Rocky Mountain Power. Such cycling uses a device in the house (nowadays it’s typically a wireless device) to enable the company to cycle the air conditioner down if total demand is close to system capacity and there is a possibility of a blackout. In this case it’s not the customer who controls energy use, but it is a product offering that provides an economic payment to the customer in return for their willingness to give up some control over their air conditioner settings.

Three important insights come out of this discussion. First, residential customers can and do respond to dynamic pricing, and residential real-time pricing does not necessarily lead to scary price volatility; in fact, there is substantial evidence indicating that such responses contribute to price stability by reducing demand at the times when prices are likely to be highest. This article corroborates the results of decades of research on this point. Second, economic concerns and environmental concerns combine to provide the impetus to residential customers to choose dynamic pricing; saving money and reducing overall resource use at the same time is a compelling value proposition to many consumers. Finally, the key to such response is the timely communication of pretty straightforward information to the customer. Making the customer’s electricity use transparent to her, and doing so in a timely way that enables her to change her behavior, is crucial. But it’s not difficult, and can be accomplished with standard digital technology of the sort that is embedded in standard digital meters.

The combination of pricing options and digital technology empowers residential consumers to get informed about their electricity use, and to use that information to manage their own use and their own costs. This empowerment is not just good for the individual consumer; it’s also good for system reliability, for reducing necessary investment in more electricity infrastructure, and for reducing overall resource use.

One thought on “Pricing and Technology Combine To Help Consumers Manage Energy Costs

  1. That Watt Spot website is awesome.

    The next step is letting your computer control your thermostat. The computer can poll the website, find out the real time price, and adjust the temperature accordingly based on some simple rules that you set up in advance.

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