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Can Surge Pricing Cut Energy Use at Home?

California will be the first state where utilities charge more for power used during peak hours.

Each day, energy use in California peaks exactly when you’d expect it to -- in the late afternoon, when people are coming home from work, cranking up their air conditioning, making dinner, watching TV and doing household chores. 

But generating power during those hours is both costly and wasteful. “To meet peak demand, utilities have to turn on more generators, and the generators they turn on last are the least efficient and most polluting,” says Edward Randolph, deputy executive director for energy and climate policy at the California Public Utilities Commission (CPUC).

That’s why CPUC is moving to “time-of-use rates” -- akin to “surge pricing” on Uber -- which charge customers more between 4 p.m. and 9 p.m. on weeknights, with the goal of shifting their use to off-peak periods. The Sacramento Municipal Utility District successfully piloted this approach between 2012 and 2014, and San Diego Gas & Electric began switching customers to the new model in March. Southern California Edison and Pacific Gas & Electric plan to follow their lead by 2020. 

Beia Spiller, an economist with the Environmental Defense Fund, says California’s plan will “reduce costs and emissions,” noting that recently improved technology like smart meters helps to facilitate the transition. But she stresses that this kind of change requires robust public education if residents are going to understand the new pricing and adjust their behavior.

Critics worry the new system will be confusing and expensive for low-income, elderly and disabled Californians. Stateline reported that California utilities have exempted 4 million customers “who are enrolled in programs that provide bill assistance to low-income people and those reliant on medical devices.”

But Randolph says he’s confident customers can adapt. “The idea is nothing novel,” he says. “If folks remember back to the early days of cellphone usage and the early days of telephone usage, it was cheaper to make a phone call in the evening than the middle of the day. We understood that, if we could make a call to family in the evening, that was the better time to do it.”

California is the first place to roll out surge pricing statewide. But the small town of Tullahoma, Tenn., began using time-of-use pricing in 2013, after the Tennessee Valley Authority, which sells energy wholesale to several utilities in the region, began charging cities higher rates during peak times of the day. Fort Collins, Colo., switched to the system this past October. An informal survey by the Coloradoan newspaper found residents “doing laundry or running the dishwasher during off-peak times, but dozens of people also said they turned down electric heating, turned off lights and avoided cooking during peak times.”

These transitions haven’t been smooth for everyone. Tullahoma customers who didn’t change their usage experienced a roughly 10 percent price increase, or about $10 more each month. Early testing of time-of-use in Fort Collins in 2017 resulted in two-thirds of customers paying $2 more.

Randolph wants Californians to understand that small lifestyle changes can make a huge difference. In the summer months, for instance, staying cool doesn’t have to mean paying more. “Pre-cool the house before peak-rates arrive,” he says, “and then you’ll be cool for the evening.”

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