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Time-of-Day Pricing for Electricity

Customers in Washington state pay less for electricity at off-peak hours. Lee Hochberg reports on an experiment in reducing demand.

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  • LEE HOCHBERG:

    At 5 o'clock in the afternoon, Karen Stillwell powered up the computer to check her e-mail. Elsewhere in the suburban Seattle home, 14-year-old Jake was plugged into sports radio while doing his homework. 12-year-old Justine had her stereo going, and nine-year-old Jeffrey was perched at the TV playing video games. Everybody was using electricity.

    Pretty typical in an American home at 5:00 PM, but under a controversial time-of-day price plan just implemented by Puget Sound Energy, a private utility serving 900,000 Washington customers, the cost to the Stillwells of using that electricity has soared. A sophisticated new electric meter on their garage wall spun minute-by-minute consumption data back to computers at utility headquarters. And the Stillwells were charged 15% more than if they had used that same electricity before 5:00 PM.

  • GARY SWOFFORD, Puget Sound Energy:

    Customers have to see the consequences of the purchase decisions they're making.

  • LEE HOCHBERG:

    Utility Vice President Gary Swafford says the time-of-day plan will reduce the chance of brownouts by inducing customers to shift their power demand to off-peak hours.

  • GARY SWOFFORD:

    This stuff has to be priced in a manner that people can see what it is that they're paying for and to be able to respond for it. For the most part, customers pay an average price and they don't have any reason to modulate their usage based upon what the actual price of the product costs.

  • LEE HOCHBERG:

    A few other utilities use time-of-day pricing. But this five-month pilot program is the nation's largest such experiment. It's voluntary to more than 300,000 Seattle area households, which have the new meters. Electricity is priced about the same as the old rate during the middle of the day, but it jumps 15% at the peak periods of 6:00 to 10:00 in the morning and 5:00 to 9:00 in the evening. Power use after 9:00 PM or on Sunday is discounted 15%. The Stillwells already are shifting their dish washing.

  • KAREN STILLWELL, Homeowner:

    I load it and then start it at 9:00 before I go up to bed. That is when it's the cheapest to use. They'll bill me at a cheaper rate if I wait and do it after 9:00, and my laundry, too. I don't do my laundry until after 9:00.

  • LEE HOCHBERG:

    But there is a debate over what this kind of load shifting will really accomplish.

  • SPOKESMAN:

    There is a critical need for us and the region to be doing whatever we can.

  • LEE HOCHBERG:

    In regulatory hearings before the plan was implemented, the utility insisted the pricing plan was essential to promote conservation. But the state attorney general's office, which represents rate payers, argued it won't help conserve at all.

  • SPOKESMAN:

    It's not a conservation mechanism. And we think their needs to be far more emphasis on really aggressive conservation mechanisms, and that this is a distraction, a misdirection of energy and resources for everyone involved.

  • LEE HOCHBERG:

    Assistant Attorney General Simon Ffitch says time- of-day pricing shifts electrical load, but doesn't reduce it.

  • SIMON FFITCH, Washington State Asst. Attorney General:

    If you want to reduce the level of demand, you get people to unplug hot tubs. You don't get them to just use it at nighttime. The real emphasis right now should be on energy efficiency and conservation. And time-of-day plans just simply don't do that.

  • SPOKESMAN:

    The response to Puget Sound energy's personal energy management program has been overwhelmingly positive.

  • LEE HOCHBERG:

    In promotional material, Puget Sound energy counters that its program does include a rebate for customers who use 10% less electricity this year than last year. But it says just shifting power use in itself benefits customers. It reduces peak demand on the system so the utility doesn't need to build expensive new power plants, a cost customers would have to absorb.

  • GARY SWOFFORD:

    If we don't get customers who actually use the energy to be able to vary their demand with what the price is, we will in fact have to build more resources than are necessary– not just generation, but transmission and distribution resources because the whole system has to be able to support higher usage. If we can get usage down, we won't have to build as many resources.

  • LEE HOCHBERG:

    The program has build-in limits. It doesn't apply to businesses like restaurants who successfully lobbied that their energy demand is driven by customers and can't be shifted to off-peak hours. Diane Symms is with the Washington Restaurant Association.

  • DIANE SYMMS, Restaurant Owner:

    You know, you build your business on when the customers are coming, not when the power companies are going to choosing to be choosing to charge you for their power at different rates.

  • LEE HOCHBERG:

    And it can't really apply to many apartment dwellers, who aren't allowed to run washers and dryers late at night. Consumer advocates say time-of- day plans for them need to be coupled with provisions to cut consumption.

  • SIMON FFITCH:

    You need to give them ways to respond that doesn't involve, you know, shivering in the dark. You can send them timers. You can send them energy- efficient light bulbs, so that… Particularly for those people who can't shift their usage, they can still have a way to respond and not be really punished by this kind of a program.

  • LEE HOCHBERG:

    But what bothers critics even more than the specifics of time-of-day pricing is the possibility that utilities could exploit it during the current energy crisis. They say it's true that load shifting could help utilities that are short of supply, but it also could be abused by utilities that have plenty of supply and want to save some of it to sell to the highest bidder. Ffitch says Puget Energy falls into that category.

  • SIMON FFITCH:

    They have enough energy from their core resources, their hydro and their long-term resources, other resources to serve their basic load.

  • LEE HOCHBERG:

    He says Puget could take the power Seattle customers don't use and turn around and sell it to needy utilities elsewhere for three to four times the price.

  • SIMON FFITCH:

    There are significant revenue opportunities here for the company. There is going to be some company benefit from selling freed-up power into that expensive wholesale market.

  • GARY SWOFFORD:

    They're just plain wrong on that. They're just wrong. That isn't the motivation behind this. The idea that somehow we came up with this program just so we could make some more money is just wrong.

  • LEE HOCHBERG:

    Puget energy reported profits of $185 million last year. It won't say how much more it expects to earn with the time- of-day plan. The company says drought conditions in the Pacific Northwest have hydropower supplies 53% below average, and utilities' real goal is to avert electricity shortages.

  • GARY SWOFFORD:

    We think we're going to have enough resources to make it through that, but we're talking about the difference between if we lose a resource, we won't have enough and we'll be in the market buying energy. So it's not like we have some great surplus that we can call upon or resources we can call upon. They all have to run and they all have to run well.

  • LEE HOCHBERG:

    Critics, though, are unconvinced. But the real winner here is whom?

  • SIMON FFITCH:

    Potentially the utility companies are going to see the biggest benefits from this.

  • LEE HOCHBERG:

    The Stillwells' electric bill for the day NewsHour visited was pennies higher than it would have been before time-of-day pricing. The utility predicts 6% of customers will see a change of up to 3%, either higher or lower. Puget Sound Energy says real change will soon be occurring nationally.

  • GARY SWOFFORD:

    Ten years from now, customers in this country will be purchasing their energy on time- of-use basis. I think this will go all over this country. I think this will go all over the world, quite honestly.

  • LEE HOCHBERG:

    The utility hopes to implement a permanent time-of-day plan for residential, commercial, and industrial customers as soon as next year. But state regulators say they'll evaluate the experiment first, determining how much energy it saved, how much money it saved or cost consumers, and what it earned or cost the utility itself.

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