Increasingly, time of use rate change (aka time of day rate change) is on the way as electric companies seek to control pricing risk with new tech. Although your electric company may offer a choice around tariffs, others require customers to convert to time of use rate plans. As a result, confusion exists around how best to respond either to the choice or the change in cost of electricity. This post helps readers learn about the reasons behind the change. Further, it encourages consumers to adopt their own tech as a means of controlling utility bills in real time.
As homeowners and renters, we are well aware of the utility meters mounted outside our homes. And more so the monthly bills they help tally! Further, those of us in markets already using “smart” meters recognize that new technology provides real-time data back to the utility. Naturally, these smart meters exist more for the benefit of the supplier rather than for us the customer. Nevertheless, given time of use rate (aka TOU or TOD) and other plan choices, we consumers can also benefit from live data. The only requirement: a way to track energy use. Armed with our own technology tools, we can then manage usage to our best advantage!
Background on Smart Meters: Why They Exist
Utilities deploy smart meters to help control and recover costs. For rural utilities, these meters help avoid the expense of rolling trucks to collect billing data from second-generation “AMR” meters. Of course, the AMR meters themselves replaced first-generation manual-read units that required visual inspection by homeowners or utility personnel. AMR meters emit signals at 900 MHz readable within a range of several hundred feet.
Also known as “AMI” meters, smart meters represent the third generation of technology for electric companies. All told, over 70 million AMI meters have been installed in the US over the last few decades. For rural areas, AMI technology realizes particular savings. It does so by allowing utilities to turn service on and off while also monitoring usage over large distances and lower population density. However, urban utilities benefit as well given rapid turnover in dwellings, high energy consumption, and increasing transition to renewable sources for generating electricity.
Energy Pricing on the Grid
For the most part, fuels drive utility costs for electricity. These costs are variable and include the expense of turning on extra power plants to match peak load. The “chunky” nature of adding power as well as contributions from wind and solar lead to large daily swings for the true cost of energy. In other words, supply and demand constraints can lead prices to vary by factors of 10 or more on a given day. The figure below provides an example of these price swings throughout a summer week.
Utility Pricing to Consumers
Historically, utilities have offered flat rates. To ensure profit, such rates must incorporate at least the “average” pricing on the grid. But the period over which this average applies may be long, leading to market exposure. Further, consumers often demand increased power simultaneously — at expensive grid pricing. For example, air conditioners across a city will respond in concert to a hot summer afternoon. Therefore, utilities apply safety factors to their flat rate calculation to protect against price spikes and customer demand.
However, in markets with AMI meters, utilities can now identify WHEN consumers actually use electricity. Consequently, in addition to flat-rate tariffs, utilities may offer plans to steer demand away from periods of high-price electricity on the grid. One of the most popular such plans is known as “time of use rate.” In this manner, smart meters help utilities buffer against price variability on the electrical grid. However, doing so may open customers to increased exposure — if they don’t have the data to make an informed decision!
Consumer Response Part I: Understanding the Implications of Time of Use Rates
Time of use tariffs rely upon different pricing for peak and off-peak periods and may include further adjustment for season. The idea is to provide incentive for consumers to shift use for intensive needs such as air conditioning. Better to avoid turning on that peaking plant if at all possible! To accomplish this task, utilities often set peak pricing at three or four times the price of off-peak pricing.
This strategy certainly serves the utility if they can shift demand. However, many customers balk when faced with the choice of moving from a flat to time of use rate. Simply put, they have no basis from which to make an informed choice regarding which plan to choose: flat or time of use rates. And even if they don’t have choices regarding available tariff plans, consumers still ought to manage the rate imposed on them by the utility.
Consumer Response Part II: Choosing the Most Appropriate Plan
Making an informed choice regarding time of use rates requires data. However, the limited data currently available to most of us fails to provide enough information for decision-making. Typically, we have seen only monthly reports on our usage — in the form of a utility bill. Hardly enough detail to speak to timing of usage.
That said, customers in AMI markets often can request greater detail for usage. And the Green Button Initiative has improved consumer access to data through standardization around this request. Nevertheless, requesting data in this manner still presents a problem for consumers with a choice around time of use tariffs: timing. In brief, it usually takes up to 72 hours for consumers to receive data following their request. This delay makes it hard for consumers to match home activities with energy demand. Or to experiment with how behavior changes, including tech innovations, might affect their bill following any change of tariff plan.
To make up for this deficiency in utility data, consumers need their own, devoted access to data — in real time. To accomplish this, consumers should seriously consider making a modest investment in energy monitoring. With ready access to real-time data, homeowners and renters can immediately see the impact on their energy usage for various appliances and use patterns. Armed with this knowledge, they can then make an informed decision regarding their response to time of use rates.
Consumer Response Part III: Managing to the Tariff
Once consumers choose their response, they then need to stick with the behavior that minimizes their expense. Once again, the modest investment in energy monitoring helps keep us on track!
How to Do It
Clearly, this post advocates installing energy monitors in our homes. On this topic, we at Emporia Energy have prepared not only a comparison table, but also our very own platform: the Vue. We highly encourage you to purchase a monitor. Ideally, you will see our solution as providing the best combination of features and value to raise your energy awareness and do your part to protect the environment.
Beyond monitoring, we further encourage you to take advantage of tech innovations to help save energy. Such innovations include smart thermostats, LED lighting, and smart power strips. And your new energy monitor will help you better appreciate the savings you achieve against any time of use rate change!