Save Money on Electricity with Alternative Pricing Plans

Knowledge is Power

If you know how electricity prices vary over time, you may be able to use this to save money.

The Theory

The electrical utility system is designed with a certain base output power that is sufficient to meet the demand for electricity almost all of the time.  On hot and humid August afternoons when everyone is blasting the AC on high, electricity demand may spike above what the base capacity can supply.  The utility company then has a couple options:

0) Do nothing.  The grid line voltage will drop, a state called a 'brownout'.  This may successfully reduce power consumption, but it could also cause some types of equipment to malfunction or sustain damage.

1) Manage demand with rolling blackouts.  Demand is pruned by cutting off power to some areas of the grid; which parts are shut down is 'rolled' on a schedule, announced ahead of time if possible.

2) Supplement the base supply with additional power by activating 'peaking plants'.  These power plants may use designs that are less efficient and cost-effective than the base supply plants, but they can be quickly switched on and throttled, like a jet engine, to match fluctuating demand.

And last, but not least:

3) Manage demand with good old economics.  If the utility company can collect time-of-use data with a smart meter and consumers are informed ahead of time that the price of electricity will be higher on certain days ('critical peak pricing') or at certain times of day ('time-of-use pricing'), they may adjust their behavior and temper peak demand.

In Practice, with Pacific Gas & Electric

If you are one of Pacific Gas & Electric's 5 million+ electricity customers, you can take advantage of two peak demand reduction programs: the SmartRate Add-On and the Time-of-Use Base Plan.  I started taking advantage of these last year and it saved me 30% on my summer power generation costs.

SmartRate is a 'critical peak pricing program' for reducing electricity demand during peak demand periods. You receive a 23% discount on your May to October electricity rate in exchange for accepting a 320% rate increase on hot summer days (9-15 days per year) that are predicted to seriously stress the grid's capabilities. These peak demand 'Smart Days' are announced ahead of time and you can be notified by text or email, so you can plan to curtail consumption as much as possible.

What if you switch and you end up paying more?  Your first year comes with free bill protection, so you'll only owe the lower amount.

On the Time-of-Use base plan, the price of energy changes depending on the time and the season:

From November to April, you receive an 18% discount on weekends and weekdays
except from 5-8PM on weekdays, when you receive a discount of 6%.

From May to October, you receive an 18% discount on weekends and weekdays
except from 10:00-21:00, when the price increases by 24%
and 13:00-19:00 when it increases by 85%.

If your schedule means that most of your electricity usage happens off-peak, you can save a lot of money with this plan!  You can even stack the Time-of-Use base plan with the SmartRate add-on for even more savings.  Everyone wins: you save money on electricity and the utility company saves money on expensive peak power generation and storage systems.

If you don't have PG&E, call your utility company and ask them if they offer alternative pricing plans for their residential customers.  These plans require the utility company to collect time-of-use data with a smart meter, which have only been rolled out in certain markets.