August 17, 2013

Companies trying out customized electric bills

But buyers beware: This new breed of payment plan – based on power usage – comes with risks.

By JONATHAN FAHEY The Associated Press

NEW YORK - Electric bills have long been take-it-or-leave-it affairs: Pay one rate for all the power you used the month before, no matter when you used it.

George Tsapoitis
click image to enlarge

Digital meters, like the one tracked on this computer screen, have made customizable plans easier for utility companies to offer and manage.

2008 file photo/The Associated Press

But some electric companies want to shake up that rigid business model. They are increasingly offering plans that sound like come-ons from mobile phone companies: Free nights, free weekends and pre-paid plans.

"We are seeing a transformation in the way people buy and use electricity in the U.S.," says Steven Murray, president of Direct Energy's residential energy programs.

The more customized plans are made easier by the growing use of digital meters that wirelessly link electric companies and customers, allowing both to track usage in real time. Digital meters have not only spurred competition, they have also enabled traditional utilities to reduce their costs by encouraging customers to use electricity during off-peak hours, when it is cheaper.

Forty-two percent of U.S. electric customers have digital meters, up from less than 5 percent in 2008. In 2015, more than 50 percent will have them, according to Navigant Consulting.

This new breed of electric plans comes with risks.

Customers can end up paying a lot more for power than they expected. Some plans offer low introductory rates that can quickly skyrocket. Others have high early-termination fees. Some fixed-rate plans are a great deal if power prices rise, but they may seem awfully expensive if prices fall.

If customers are careful, though, they can pay less.

Dorothea Miller of Sinking Spring, Pa., signed up for a Direct Energy plan that gives her one day of free power every week. She picked Saturday, and now saves as much of her housework as she can until then. She stops short, she says, of letting mountains of dirty laundry or dishes accumulate in anticipation of Saturday's free power.

"We pretty much run things the way we did before the plan, but now we set our dishwasher to go on after midnight (Friday) and do most of our laundry on Saturday," she says.

TXU Energy offers a similar plan to Texas customers that offers free power every night from 10 p.m. until 6 a.m., or free power Saturdays and Sundays, in exchange for a higher rate during other times.

Customized plans are most prevalent in the 13 states and Washington, D.C., where regulators have allowed companies to compete to sell electricity. In those states, the number of customers that have signed up with electricity suppliers that offer these types of plans rose to 13.3 million in 2011, from 8.7 million in 2008, according to the most recent numbers from the Compete Coalition, a group that lobbies to expand competitive electricity markets. The plans are also popping up in other states.

Electric competition has been around for more than a decade and utilities have experimented with pricing plans for even longer. But digital meters have made these plans easier to offer and manage. They are being installed around the world; utilities in China, Japan and across the European Union have aggressive plans to expand the use of digital meters.

In the U.S., companies have different motivations for offering innovative plans. Traditional regulated utilities are trying to reduce stresses on their grids. Upstart power providers are trying to lure new customers.

In both cases, they are trying to get customers to use less electricity when it costs more. Wholesale power prices fluctuate depending on the time of day, from zero overnight to thousands of dollars per megawatt-hour during a hot day.

Yet most customers see one average price every month, a price that includes those sky-high peak rates. With plans that offer prices that vary based on the time of day, customers can avoid high-cost power in the same way air travelers can save by not flying on the Wednesday night before Thanksgiving.

(Continued on page 2)

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