If you still have an old analog electricity meter in your house, its days are numbered. Advanced metering technology, broadly described as smart meters, is becoming more common across the United States. About one third of the nation’s 114 million households are already on smart meters and another 50 percent are expected to have smart meters in five years,
These meters not only deliver usage information to your utility, (no more strangers walking through your yard to read your meter) but also deliver dynamic pricing information which enables the consumer to adjust their consumption to the real price of electricity, known as time-of-use pricing.
Most electricity consumers still pay a flat rate for their electricity regardless of the time of day they use power and regardless of fluctuations in wholesale prices in response to weather and demand. This robs the electricity market of what economists call “elasticity”, or the ability of consumers to change their demand in response to prices.
Why is elasticity important? It can save you money. A report from the Brattle Group finds the lack of exposure to time-of-use or “dynamic pricing” is costing consumers $7 billion every year.
Flat pricing is especially disadvantageous to low-income customers. According to the report, low-income customers are subsidizing prices for higher-income users amounting to $3 billion a year. As many as 80% of low income customers may be over-paying for electricity today under flat rates.
Other countries are far ahead of the United States in terms of deploying and utilizing time-of-use pricing technology. In France, a long established time-of-use program has achieved a peak load reduction of 450 MW.
The system works by assigning various colors to different levels of usage. Red days are high use days with the highest prices, followed by medium cost white days and low cost blue days. Each evening consumers are informed which price schedule will be in place the next day through a plug-in device that changes color or a notification via phone or the internet.
Participants have reportedly achieved an average bill savings of 10 percent relative to other options. Overall, 90 percent of the program?s participants report to be satisfied with the program.
Now time-of-use pricing for residential customers is slowly making its way across the pond. California has already launched time-of-use pricing for large pools of consumers. During summer months, a SmartRate surcharge and discount are applied, saving customers an average of $53 or (8.2 percent) compared to the flat rate.
Here’s how it works, the utility can announce 15 peak events per summer when the higher rate, the surcharge, will go into effect. Residents are notified about peak events by 3 pm the preceding day. If they use electricity during the peak period they will be charged a 60 cent surcharge per kWh. The program also provided off-peak discounts of 3 cents per kWh to 4 cents per kWh.
Overall, 88 percent of participants reduced their electricity bill. And it appears the vast majority of customers who signed up for the time-of-use rate have stuck with it. Over more than two years, the average attrition rate for the program was 0.3 percent per month.
In the next few years, time-of-use pricing is expected to roll out in competitive markets across the Mid-Atlantic region, followed by the Midwest and California.
