Experts say variable pricing can help California’s energy woes

By Andrew Bridges Associated Press Writer
Monday March 05, 2001

LOS ANGELES – California could make enormous strides in conserving energy if the state’s electricity was priced like most other commodities, efficiency experts say. 

Most consumers are charged the same price for power throughout the year, regardless of wild fluctuations in generation and transmission costs. 

Advocates favor real-time pricing that would vary the price from day to day. High prices, they argue, could encourage large industrial and commercial users to cut back when electricity is in shortest supply. Energy-intensive activities — whether making microchips or smelting ore — would be shifted to off-peak hours when prices are lower. 

“Right now, absent real-time prices, the system is at best archaic, at worst hypocritical,” said Arthur Rosenfeld, a member of the California Energy Commission, which helps set state energy policy. “We ask people to conserve, but we don’t reward them when we need them to conserve.” 

“In my view, prices have only one function: to convey to the consumer the scarcity of that commodity,” said Ahmad Faruqui, area manager for retail and power markets for EPRI, a Palo Alto, Calif., nonprofit research and development group that studies the utility industry. 

Real-time pricing might have prevented rolling blackouts that hit the state in January. 

“Two hundred megawatts was the deficit during one blackout,” Faruqui said. “It would have easily compensated for it.” 

Real-time pricing is already common in the airline industry, where ticket prices invariably soar as the day of a flight approaches and seats fill up. 

Last year, the Seattle Mariners experimented with a similar system for baseball tickets. 

Among utilities, the Georgia Power Co. runs the nation’s largest real-time pricing program. It issues price bulletins on both an hour- and day-ahead basis for more than 1,600 large consumers, including factories, churches and grocery stores. 

An insulation factory shifted production to Wednesday through Sunday to take advantage of cheap weekend power, said Michael O’Sheasy, manager of product design for the Georgia utility. 

“It’s amazing how ingenious people become when it affects their bottom line,” O’Sheasy said. 

During the summer, when the Georgia heat sparks increased use of air conditioning, the program can reduce the amount of power the utility must generate by 800 megawatts, or about 5 percent. 

Although not a large number, it’s worth as much as $1 million per hour in savings, because power is typically most expensive to generate at times of peak demand, O’Sheasy said. The cost would otherwise be passed on to consumers. 

Other utilities, such as Puget Sound Energy, are beginning to include detailed information in customers’ bills about their power use and the wholesale price of that electricity at the time it was used. 

Anecdotal evidence suggests the information has helped reduce demand by as much as 5 percent, Gary Swofford, the utility’s vice president and chief operating officer, told a San Diego energy conference last month. 

Pacific Gas & Electric Co. began experimenting with real-time pricing in the 1980s. From 1996 to 1998, the utility ran a pilot program at the San Francisco Marriott. It incorporated electricity price information in coordinating the hotel’s heating and cooling system. 

“We figured conservatively we could probably save them 10 percent to 15 percent with a rate-driven system,” said Steve Blanc, a senior research associate at the utility. 

The California Energy Commission will begin a larger experiment this summer.  

The $10 million project will equip buildings around the state with systems to automatically curtail power use by 50 megawatts at times of peak demand.