Off-Peak Laundry? Pricing Power by the Hour

By Lisa Rein
Washington Post Staff Writer
Wednesday, December 12, 2007

Pepco is about to start sending personal e-mail messages to Jonathan and Lauren Schwabish every few hours that could determine when they do the dishes, wash the baby's clothes or turn on the air conditioner.

The couple will learn when the price of electricity for their old Capitol Hill home will spike the next day because Washington's winter chill or its steamy summer is nudging up the demand for power.

If they wait to turn on the washing machine or they turn off the air conditioner when the sun beats down, they'll be rewarded with a credit on their utility bill that could reach hundreds of dollars a year. Other D.C. residents have agreed to pay rates eight times the average if they use their appliances at peak times but rates well below it at off-peak hours, as part of a pilot program starting next month.

"Lexus lanes" are coming to the electricity grid. Energy conservation programs that died when the power market switched from regulation to competition are back, but with new technology and aggressive demands from government regulators facing anger over rising prices.

Just as long-awaited high-occupancy toll lanes will charge drivers a fee to travel at rush hours, electricity customers will pay more when the grid is congested and less when it's not. If the strategies succeed, customers will not only slash their bills but also reduce pollution from coal-fired generating plants.

And within a few years, energy experts predict that Washingtonians will live like the cartoon Jetsons, their homes powered by computer chips that shut down washing machines and dishwashers when electricity prices soar.

"It's not far-fetched," said Mark Case, senior vice president of regulatory services for Baltimore Gas & Electric, which will start testing advanced meters in 5,000 Maryland homes in April, including some in Howard, Anne Arundel and Prince George's counties.

Jonathan Schwabish, an economist for the federal government, got a letter from Pepco this fall telling him he was randomly selected for a two-year pilot program to encourage energy conservation in 1,200 D.C. homes. "I like the whole idea behind it," he said. "I could see targeting the air conditioning not to run between 12 and 2 if that's when the peaks will be. Will it be a hardship? Maybe, but we're trying to be as environmentally friendly as we can." His summer electric bills run about $100.

Meters that can read prices every hour are also the centerpiece of aggressive conservation efforts in Virginia and Maryland, where Gov. Martin O'Malley (D) has pledged to reduce the state's electricity consumption by 15 percent by 2015. Fluorescent light bulbs that outlast traditional incandescent ones, rebates on energy-efficient appliances, free energy audits -- all are on the table for customers of Pepco, Virginia Dominion Power and BGE, among others.

"At the end of the day, people want to understand what their electricity is costing them and what they are getting for it," said Steven B. Larsen, chairman of the Maryland Public Service Commission, the state's utility regulator. "The basic concept is that technology can help save us money."

Smart meters have not been mandated, but they are being used in several states. The Illinois legislature has required the expansion of peak pricing programs, and Florida and California are among those conducting pilot programs.

Consumer advocates, however, have expressed concerns that "time of day" pricing puts elderly and disabled customers at a disadvantage because they cannot easily reduce their energy use.

"We've got very strong reservations about applying this across the board to people with certain life circumstances," said Paula Carmody, director of the Maryland People's Counsel office, an advocate for utility customers. "People would be charged extremely high prices at some times of the day." The counsel opposes a proposal by Pepco to install the meters in Montgomery and Prince George's counties. Regulators are scheduled to take up the plan early next year.

Dominion Power has applied to Virginia regulators to install smart meters in a program to test conservation programs in 4,500 homes.

In the District, Pepco is conducting the pilot program with city consumer advocates and the electrical workers union.

Some customers will receive advance information about the price of electricity during about 15 days in July and August and three days in the winter, when demand is highest. During those hours, they will be charged 81 cents a kilowatt-hour, compared with the average summer price of 11 cents. But they'll pay only 9 cents at off-peak times, and their bills will be lower than their neighbors' bills, officials said. Others, including the Schwabishes, will get rebates for reducing their consumption. Another group will get rebates for allowing the utility to turn off their cooling systems.

BGE plans to bump its peak kilowatt-hour price to $1.30 and its off-peak to 9 cents as part of its test, Case said.

Smart meters look like traditional ones, but they can record a home's use of electricity every 15 minutes and feed the information to the utility.

The utility sends price information to its customers by e-mail, text or pager message or automated phone call. The Schwabishes and hundreds of others in the D.C. pilot program got another device, too, a "smart thermostat" that will allow Pepco to send a radio signal to their home to cycle down their central air conditioning for 15 or 30 minutes an hour when power prices are high and ramp it back up then they fall.

Electricity prices move up and down all day on the grid that feeds power to the mid-Atlantic states, though most people might not know it. A typical customer's bill doesn't reflect the fluctuation and instead is based on the average price of the power used over a month.

Electricity costs more at peak hours because utilities, to meet rising demand, must start up generating plants that can be fired up quickly and are more costly to run, or buy expensive power on the grid. Utilities would save money if people shifted electricity use to the night, when power plants usually run below their capacity.

"You'll say to yourself, what am I willing to pay today?" said Steve Sunderhauf, one of those leading Pepco's program in the District. "Maybe it's a hot day, but I don't want to pay that much. Maybe I'll go out to dinner and make sure my air conditioner isn't running."

When the price reflects the cost of power and utilities shift away from flat bills based on averages, electricity should cost less, he said. The District could reduce its consumption by 80 megawatts during the July-to-August peak, enough to power 26,700 homes, Sunderhauf said.

Utility officials say they hope to eventually install smart meters in every home. Pepco, for example, wants its 1.8 million customers to have them by 2012.

The technology isn't cheap: Each meter costs $180 to $240, an expense that will largely be passed on to customers. Pepco said in its filing with D.C. regulators that it would add a $6 surcharge to bills if the $2 million pilot program, which it is paying for, is expanded. The utility said the extra costs would be offset by an average savings of $8 a month.