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Demand-Response or “Smart Metering”

Demand-response, also known as metering, dynamic pricing, time-of-use pricing, real-time pricing and hourly pricing, offers consumers choice and transparency and promotes efficiency. Thanks to the Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007, all utilities must offer customers both the option to pay for exactly what they use and the equipment to make this possible.     Here's how it works: The price your utility company pays for power on the wholesale market varies depending on supply and demand. When utilities are competing for a limited amount of available power, the price rises accordingly. In fact, wholesale electricity prices fluctuate every hour. For example, your utility company typically pays at least 10 times more for the power it buys on a hot August afternoon when everyone is running their air conditioners at full blast than it does at 2 a.m. on a temperate spring morning when few people are using appliances. A few utilities offer their customers the option to pay for electricity the same way, allowing them to control their electricity bill by understanding exactly what they are paying for and when. This system is generally known as time-of-use or dynamic pricing. But, most utilities simply lump all the costs together and charge customers based on an average of what they pay wholesale. The catch is, you have to ask for dynamic pricing. While states are required by law to study the feasibility of changing all their customers over to time-of-use pricing, they are currently only required to provide this rate structure upon customer request. Is it worth your time? Consider these cost-saving examples:

  • On average, consumers who participated in the Pacific Northwest GridWiseTM Demonstration Project saved approximately 10 percent on their electricity bills.
  • Community Energy Cooperative of Chicago's demand-response program saved its 750 residential customers an average of 19.6 percent in 2003.
  • Pacific Gas and Electric has offered time-of-use pricing since 1982. As of the early 1990s, 80 percent of participants were saving on average $240 a year through the program.
  • Customers participating in a demand-response program in Florida in 2002 paid 11 percent less in electricity bills than customers who did not participate.
  • Several studies estimate that widespread adoption and use of demand-response could save electricity customers and our economy between $10 and $19 billion a year.

Cost savings are due in part to the fact that utilities often must build new power plants and lines solely to have enough capacity to meet the demand for power when it is at its very highest - only a few days, or even hours, per year. The cost of building this capacity is passed on to the consumer in the form of higher rates. Widespread use of demand-response systems or time-of-use pricing would encourage consumers to cut their energy use at peak times and therefore make it unnecessary to build new infrastructures. Additional savings would come from a reduction in prices in wholesale power markets. Wholesale prices rise when supplies are short because of heavy demand at peak times a few days every year. A reduction in demand would eliminate the shortage and subsequently reduce wholesale prices for everyone.