Electricity prices have been falling, but can they really be free?
Direct Energy, one of 44 competitive electricity suppliers selling power in the PPL coverage area, unveiled a plan offering four hours of free electricity in the evening. But even with four hours of free power, it may not be the best deal for all consumers.
In this example of time-of-use or dynamic pricing, Direct Energy offers power at no charge from 7 to 11 p.m. seven days a week. Another plan offers free power for one day a week.
Time-of-use, or dynamic electricity pricing schemes, although common in some other parts of the country, are just beginning to make inroads with residential consumers in Pennsylvania. With restructured electricity markets and smart metering available - dynamic rates are the next step in the evolution, one that brings prices paid for electricity closer to the cost of producing the power.
"(Most) customers pay a one-size-fits-all price and have no incentive to alter their consumption in response to price fluctuations," said Bryan Lee, of the Retail Energy Suppliers Association. Time-of-use rates have broad support within the industry, among environmentalist, and among consumer advocates, he said.
Moving prices
Dynamic pricing is common in other industries, such as the airline industry, where tickets are sold based on supply and demand at a given moment. With food, a freeze in Brazil would drive up coffee prices; a drought in the Midwest can drive up grain prices. The most obvious example of dynamic prices is at the gasoline pump, where prices change almost daily. Electricity supply and demand and the cost of generation swing widely throughout the day. Yet the vast majority of households pay a single price for power no matter when they use it, often paying a rate that does not change for months or years - an average of a cost that fluctuates widely behind the scenes.
That flat rate is a legacy of the old utility monopoly that set average rates because there was no way to tell when power was used - just the total amount of power used over a given period of time. PPL was ahead of its time, installing smart meters in 2004, which measure not only how much power is used, but when it is used.
A quick survey of other competitive suppliers found no other examples of time-of-use options in the PPL service area. PPL Electric Utilities has a time-of-use plan it was required to create by the state Public Utility Commission but that plan is so uncompetitive that the utility has been reaching out to the 2,000 or so customers to urge them to get on a more competitive plan, said PPL spokesman Brian Hay.
Dynamic prices for electricity brings electricity prices paid by consumers closer to the cost of generating the power. Also, the hope is that consumers respond to those price signals and change their habits, conserving power or moving power use to hours of less-expensive (or even free) power.
A closer look
Free power may sound enticing. But the rest of the day, Direct Energy's fine print reads, electricity will cost 8.9 cents per kilowatt hour. That's higher than all but one of the flat rate plans currently available by competitive suppliers. It's also 20 percent more than the default rate of 7.5 cents currently offered by PPL to any customers opts to not select a supplier. Direct Energy's rate is also 33 percent more than lowest available fixed rate of 6.9 cents per kilowatt hour offered by Reliant Energy Northeast.
Whatever is saved during free hours could be lost with the uncompetitive rates paid on usage the other 20 hours of the day. Winners will be those able to move significant energy use to after-hours.
While the Public Utility Commission website allows people to comparison shop against the utility default rate - all those are flat rate plans. When it comes to determining what your bill would be under a dynamic pricing plan, shopping requires some numbers crunching. PPL customers have access to hour-by-hour breakdown of their energy use through PPL's website. A household may be able to take a month to try to move energy use to non-peak, cheaper hours. With the results, a household may be able to tell if a time-of-use plan will save them money.
Acting State Consumer Advocate Tanya McClosky said a home that cooks, heats and dries clothes with natural gas, for example, may not find the plan beneficial at all. Those without natural gas service who rely on electricity to heat homes and water, may find such a plan economical, particularly if they put their tank-style water heater on a timer, for example.
"Having competitive electricity markets offer a world of options," Ms. McClosky said. "Time-of-use is one kind of an option for a specific type of customer."
Direct Energy's plan allows people to drop out at anytime with no penalty. The company's own data shows customers are less likely to drop a time-of-use plan than they are a flat rate plan, suggesting to Ron Cerniglia, director of governmental and regulatory affairs for Direct Energy customers are happy with it.
There may be other benefit to being on a time-of-use plan. People start paying close attention to when and how much they use power and use less of it. Mr. Cerniglia said the when the company began time-of-use plans in Texas, the average customer's energy use fell by more than 18 percent.
There is also a collective benefit. Moving energy consumption to off hours, changes where power comes from and how it is generated. Peaking generators fired up during high demand will be used less. These power plants operate more expensively, and set the wholesale price for electricity, said Jacob G. Smeltz, of the Electric Power Generation Association. So shifting to power to non-peak hours reduces prices for all.
"If peak demand drops, the cost of meeting that demand goes down, as well," Mr. Smeltz said. "When you use power off-peak, it's coming from baseload facilities which operate very economically and are generally cleaner."
More options coming
Pennsylvania recently hit a milestone with more than 2 million residential households out of 12 million purchasing electricity from a retail suppliers.
More time-of-use option are likely coming for consumers. Christine Nevins, spokeswoman for Con Edison Solutions, said the company is actively considering time-of-use options for residential customers.
Another class of pricing is on the way: real-time. The PUC is pushing for even smarter meters with the capability of real-time pricing. These two-way meters can give customers, through a mobile application or a device in the home, current pricing of electricity, letting them know when power is cheap, average-priced or expensive.
"These products give people a better appreciation of their energy usage, allows them to make behavior adjustments and take control of their bill," Mr. Cerniglia said.
Contact the writer: dfalchek@timesshamrock.com