Correcting misconceptions about load-management programs.
Lisa Wood is executive director of the Edison Foundation’s Institute for Electric Efficiency. Ahmad Faruqui is principal at the Brattle Group. The authors acknowledge the contributions of Sanem Sergici at the Brattle Group.
Studies are showing that dynamic electricity pricing—where prices vary based on system conditions, rising during critical periods for a few hours each year and falling during all other times—can benefit both customers and electric utilities alike. By encouraging customers to shift some of their demand on those critical days to off-peak hours, the higher peak prices can help utilities to defer the need for building additional capacity. And the lower off-peak prices represent a savings for consumers over their regular electric rate.
But how does dynamic pricing affect low-income customers who often are regarded as vulnerable? Different viewpoints yield different answers.1
One school of thought is that low-income customers, because they use relatively less energy than the typical residential customer, would benefit from a rate that charges them more during a few peak hours and less during the vast majority of other hours during the year. And, if low-income customers did shift some of their demand from peak to off-peak hours, they would benefit even more. Others believe that low-income customers would be harmed by dynamic pricing because they have little discretion in their power usage, which means they would have less to work with in terms of shifting demand to off-peak hours.