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Time-of-use Pricing

When the temperature in the Florida panhandle steams into the 90s and air-conditioners thirst for electricity, Gulf Power strains to keep up. On the hottest midsummer afternoons, the system can hit critical - the point at which all of Gulf Power's generating resources are put online to meet the swelling demand. While most of the Pensacola utility's 300,000 residential customers pay a fixed rate of about 6 cents per kilowatt-hour - no matter how limited the supply - a fraction of them fork over a staggering 29 cents per kWh during periods of peak usage. And they do it willingly. The 2,350 Gulf Power customers in its GoodCents Select program are among the first in the country to benefit from time-of-use pricing, which rewards consumers for shifting their electricity usage to off-peak times of day, when the cost of producing power is low. The payoff for the steep peak prices is that they occur infrequently; more than 80 percent of the time, these customers pay less than the flat rate. By turning down the AC a few degrees during the day, shutting off the hot-water heater, deferring laundry until after 9 p.m. (or before 5 a.m.) and being more selective about using other appliances at peak times, the average GoodCents Select customer can save 15 percent or more on their monthly bill (even after a $4.53 monthly fee to be part of the program). Gulf Power and some utilities in New York, California, Washington, Wisconsin, Louisiana, Arkansas, Texas and the Carolinas are beginning to experiment with time-of-use pricing. It works to their benefit, as well, because it helps them manage their generating capacity, which has to be built for the highest demand, even though these peaks are infrequent - occurring about 2 percent of the time. "It gives consumers a better awareness of what it costs us to produce electricity and what control they have over their own consumption," says Steve Higginbottom, a Gulf Power spokesman. Best of all for consumers, control can happen automatically by using smart thermostats that set back home appliances when the price goes up. "What we're doing is marrying price and technology," Higginbottom says. "Once you set the system for your lifestyle, you don't have to worry about it." Automatically reducing demand during power shortages is not a new idea. Starting about 25 years ago, utilities have experimented with direct load control, which allows them to turn down a homeowner's heating and cooling system or hot-water heater when power shortages are imminent. The system amounts to a remotely activated switch: The utility sends a wireless "page" or an electrical signal to a controller on the furnace, air conditioner or hot-water heater, which temporarily turns the appliance down or shuts it off until the critical period eases. Consumers usually get a price break or rebate if they participate, and most utilities allow homeowners to override the signal if they choose. While it does offer utilities another weapon to fend off rolling blackouts and to avoid paying premiums for wholesale power from other suppliers, the drawback to direct load control is, in fact, control. Homeowners don't know when the utility is going to send out a shutdown signal (although utilities generally commit to a maximum number and duration), and there's no price incentive to conserve during times of peak demand. Time-of-use pricing gives homeowners more control, but not all utilities offer it for the simple reason that they can't bill customers at different rates unless they know exactly when a household is using electricity. Large commercial and industrial customers often have sophisticated power-management programs with their local utilities, but most utilities read residential meters monthly, and the meters don't keep track of when the power was used. At the end of the month, the person who sweated out heat waves may have a leaner bill than the neighbor who cranked the AC and slept in front of an open freezer, but their rate is identical even though the energy glutton feasted on a vastly more expensive resource. "Electricity is one of the last bastions of the lump-sum bill," says Dan DeLurey, executive director of DRAM, the Demand Response and Advanced Metering Coalition, which is lobbying for industry and regulatory changes that favor real-time pricing. To charge fluctuating rates, a utility needs to know how much power you consume at specific times of each day, which means checking the meter at least hourly and in some cases as often as every 15 minutes. So unless a utility plans to hire thousands of new readers, the meter has to send data back to the utility automatically, through a phone line, electrical wires or by a wireless radio-frequency system. "Unfortunately, residential customers haven't had much of an opportunity to take advantage of this," DeLurey says. "The benefit has been there, but the technology has not." That's starting to change. Puget Sound Energy, based in Bellevue, Wash., has upgraded more than 400,000 electrical meters to send radio signals every 15 minutes to transmitters mounted on utility poles. The transmitters relay the information back to the utility, where it is matched to customer billing systems. Puget Sound also sends the data to the Internet, where consumers can see exactly how much power they are using virtually in real time, and how much they can save by shifting their usage to off-peak hours. The communicating meters can also report outages more quickly and reliably. Puget Sound has four daily pricing "blocs" corresponding to demand: 6 a.m. to 10 a.m. and 5 p.m. to 9 p.m. are peak times when the price per kilowatt-hour is 6.25 cents. The price drops to 5.36 cents from 10 a.m. to 5 p.m., and it goes down to 4.7 cents from 9 p.m. to 6 a.m. A kilowatt-hour is the amount of electricity needed to power a 100-watt light bulb for 10 hours; a typical household might use 1,000 kWh of power or more in a month. While only 300,000 of Puget Sound's customers are billed according to time of use (the remaining 100,000 can track their usage online, but are still billed a flat rate), the utility hopes to roll out the service to all their residential customers - nearly 1 million - this year. "It's a wildly popular program," says Grant Ringel, spokesman for Puget Sound Energy. Ringel says more than 90 percent of the customers in the pilot program have taken action as a result. More importantly, the utility has shifted 35 megawatts of power generation from peak to off-peak times. Reducing peak demand can reduce a utility's costs substantially, not only by deferring the need to build new capacity, but also by reducing reliance on the volatile wholesale market, which utilities use to make up the difference when short-term spikes in demand outpace their own supplies. "Shaving 5 percent off peak consumption allows us to service new customers without having to build new power plants," Ringel says. One of the most advanced time-of-use systems has been deployed by Gulf Power, which has partnered with Comverge Technologies Inc. of Florham Park, N.J., to develop an electrical meter and thermostat system that responds to price signals by automatically setting back a home's thermostat and up to two other appliances. The digital electrical meter serves as a two-way information gateway between the utility and its customers, communicating wirelessly (from the utility) and by phone line (back to the utility). Like Puget Sound, Gulf Power has four pricing tiers in its GoodCents Select program, ranging in price from 3.5 cents to 29 cents per kWh for those rare but expensive critical times. The tiers correspond to time of day and day of week, and they change seasonally (although the critical tier only goes into effect when demand peaks, not at scheduled times). It's probably unrealistic to expect consumers to know exactly when the prices change, so Gulf Power made it easy by including a communicating thermostat with the program. The Superstat, manufactured by Honeywell, has all the features of a standard seven-day programmable thermostat, but it's also connected to the electrical meter through a home's existing 120-volt wiring, so no additional wiring is required. The homeowner selects heating and cooling temperatures that correspond to the four pricing tiers, and a radio signal from the utility lets the thermostat know when the price changes. The Superstat also operates as a switch to govern up to two other appliances. A homeowner, for instance, can cycle off their hot-water heater or pool pump during the day and have it automatically come back on at 8 p.m. when the price drops. Communicating thermostats herald a new generation of appliances that can send and retrieve information, says DeLurey of DRAM. A homeowner in the not-too-distant future might consult a screen on their dishwasher before they run a load, the way you check the fuel gauge in a car before taking a long trip. "The thermostat may just be the easiest to grasp and the easiest to do," DeLurey says, "but I think you're going to see this technology embedded in other consumer products." Zack Gaulkin is a freelance writer based in Kennebunkport, Maine.