Time-of-Use Pricing With time-of-use pricing, you'd pay more for electricity you use at peak times – just as you often pay more for phone time, restaurant meals and hotel rooms during busy periods. "Speaking as an economist, it makes sense to price according to cost," says David W. Kreutzer, Ph.D., a research fellow in energy economics and climate change in the Center for Data Analysis at the Heritage Foundation, a conservative think tank.
Kreutzer cautions this will take some adjustment and consumers might have trouble paying a new, much higher cost. "But how often are we changing the cost?" he says. "What if the choice is to pay 30 cents a kilowatt hour or do without?"
Time-of-use pricing is an incentive to rethink energy use. Consumers who were willing and able to change their behavior would be rewarded, Berst says. "Right now the person who cranks the AC to real cold even in the middle of a peak event is paying the same rate (per kilowatt hour) as the person who doesn't have the AC on at all," Berst says.
Other Generation One intriguing source of additional peak demand generating power is the backup generators that many companies already have to use in the event of outages, Pullins says.
In Portland, Ore., Portland General Electric is doing just that. The utility has started a Dispatchable Standby Generation Program to put commercial and industrial standby generators to work for up to 400 hours a year to meet peak demand, the utility says on its website. The utility will install equipment to reduce emissions, assume maintenance of the standby generators, and if needed install equipment to make the generators run faster.
Employing these already-existing generators will allow PGE to meet peak demands at about one-fifth the cost, Pullins says. "It's a great community approach and a community solution," he says.
Changing the Way Utilities Make a Profit Switching to a Smart Grid system will require regulatory changes covering how utilities make profits for their shareholders, Berst and others say. Under current regulatory practice, utilities are rewarded for selling electricity and building more plants to generate power.
"That was great in the 1920s to the late 1970s when we were trying to build the electric system for everybody in the country," says Steve Pullins, president and CEO of Horizon Energy Group. "All the systems were set up to reward growth."
Now that the plants are built, "we don't need utilities to build more," Berst says. "We need them to do more with less. But the only way they're allowed to make more money is selling more electricity. We don't want them to sell more electricity. We don't need them to be building new plants. But they have a responsibility to shareholders to maximize returns. We need to decouple profits from how much electricity is sold."
Change is coming. For example, Duke Energy has won approval from state utility commissions in North and South Carolina and Ohio to offer customers energy management tools and programs – some as simple as free or discounted energy-saving compact fluorescent light (CFL) bulbs. The more effective the programs are at saving energy, the more Duke Energy is allowed to allowed to profit. So, a program that achieved less than 60 percent of its target energy savings would yield the utility only a 5 percent profit while a program that hit better than 90 percent would mean a 15 percent profit.
Utilities are now regulated by state commissions. Those in the industry differ over whether regulatory change should come at the state level or whether new federal standards are needed. "Everybody wins," Manes says. "The customer benefits by saving money. We continue to be a strong company. The environment wins – the more efficient we are, the fewer power plants we have to build and run."
The Smart Grid will allow you and your utility to more actively manage power use. You'll have the chance to make more choices that will lower your bills. Those choices, along with other options, will help your utility avoid ramping up expensive standby plants. A Smart Grid also will help utilities quickly diagnose problems, meaning blackouts are less likely to be as widespread.