NCPA - National Center for Policy Analysis

Electric Utilities Discover Supply And Demand

July 17, 2000

Historically, suppliers of electric power have charged customers flat rates for power -- encouraging consumption without regard for peaks and valleys in demand. Now, with the prospect of shortages in this and coming years, a growing number of utilities are varying the price of power based on supply and demand, and even the time of day.

The approaches to saving energy in times of peak demand vary from company to company -- but some of the schemes are novel.

  • Wisconsin Electric Power offers 80 of its biggest customers cash to reduce consumption during certain hours.
  • In Connecticut, Northeast Utilities is installing Internet-controlled thermostats in 50 houses, which it can use to bump up air-conditioner settings by four degrees when it needs the power, in exchanges for a $200 payment to each homeowner for the summer.
  • Around the country, utilities are installing radio-controlled switches on central air-conditioners and swimming pool pumps to turn them off at peak hours.

Utilities typically sell a kilowatt hour to customers for 8 to 10 cents -- but under deregulation the cost to the utility can temporarily soar as high as $6 a kilowatt hour.

Source: Matthew L. Wald, "Utilities Trying New Approaches to Pricing Energy," New York Times, July 17, 2000.


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