Newspaper article THE JOURNAL RECORD

Time-of-Day Pricing Used by Utilities

Newspaper article THE JOURNAL RECORD

Time-of-Day Pricing Used by Utilities

Article excerpt

A growing number of consumers are paying a price for electricity based on the time of day they use it.

Utilities, either on their own or on the orders of regulators, are merging the clock and the electric meter to create ``time-of-day'' pricing.

The idea is to make the price reflect production cost, which also varies by time of day.

In Maryland, Minnesota, New York, Ohio and other states, utility companies are picking up an idea that has been practiced by airlines and long-distance phone companies for years.

The goal is to spread demand over all hours of the day and to make better use of expensive generating equipment that, in the current use pattern, often sits idle.

Meeting everyone's needs when demand reaches its peak is an especially severe problem for power companies because the costs of building and maintaining generating equipment is very high.

Manufacturers solve the problem by building up a surplus of their production off-peak periods, but electricity cannot be stored; it must be produced at the instant the consumer wants it.

Utilities, using a system called ``economic dispatch,'' run their cheapest generators continuously, and start up the more expensive ones as demand increases.

Thus at 2 a.m. a utility might meet all its needs from a hydroelectric dam that produces power for 2 cents a kilowatt-hour.

But on a summer afternoon when every air-conditioner is running, demand would be so high that the utility would use its most expensive generators, perhaps an oil-fired plant where electricity cost 8 cents a kilowatt-hour.

Under the traditional pricing system that has been used for decades and is still by far the predominant system for residential use, customers are charged the same amount, a standard rate, for all hours.

There is increasing interest among utilities and state governments in promoting more efficient use of electricity.

Primarily because of the increasing use of air-conditioners in summer and heat pumps in winter, the demand during peak hours is growing stronger in many parts of the country, and few utilities have much spare capacity or plants under construction.

Shifting peak demand to off-peak hours could save millions of dollars in construction costs for new plants, experts say, with costs that are eventually passed on to consumers.

``The purpose of the time-of-use rate is to give an improved price signal,'' said Charles J. Roncaioli, manager of rate analysis at Northeast Utilities of Berlin, Conn.

He meant that under this new system, the consumer is now told what the product costs to make at various hours of the day.

``An economist would expect a customer would react and shift load to other periods of the day,'' he said.

Northeast implemented such rates in Connecticut a decade ago with mixed results. The company found that customers either could not or would not shift activities like running a clothes washer or dryer, a dishwasher or an oven to off-peak hours.

Technological changes are making such rates easier to implement. …

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