Hard times for time-of-use at PSE

By Steven M. Brown
Utility Automation Senior Associate Editor

Dec. 3, 2002 — Puget Sound Energy (PSE) announced in early November that it would ask the Washington Utilities and Transportation Commission to end PSE’s time-of-use (TOU) billing program (see News, Page 8).

At the time of this writing, it appeared likely that the request would be granted, and PSE’s “Personal Energy Management” program, once a poster child for the benefits of time-sensitive billing, would end amid heavy consumer drop-outs.

PSE’s Personal Energy Management program was born in 2000 during the West Coast energy crisis. At the time, the cost of power during peak periods was as much as $145 per MWh higher than it was during off-peak periods. The idea behind the program was to offer customers financial incentives to shift energy use to off-peak hours through a tiered pricing plan.

Customers enrolled in the Personal Energy Management program would pay slightly more than fixed-rate customers during peak hours, about the same during the midday hours, and less during off-peak, or “economy,” hours (9 p.m. to 6 a.m. and certain holidays).

By encouraging customers to shift consumption patterns, PSE could realize at least a couple of benefits: First, TOU customers who shifted high-energy tasks such as clothes washing and drying to economy hours would likely see a decrease in their monthly electric bill. Although the decrease would be minor, remember that the Personal Energy Management program began during a time when consumers were ultra-conscious of skyrocketing utility bills.

A program designed to help customers lower bills would result in a measurable increase in customer satisfaction. (And, initially at least, it did.) Second, if enough customers shifted their usage off-peak, PSE theoretically could benefit by not having to buy as much electricity on what was then an extremely volatile wholesale market.

The program burst out of the gates a success. West Coast consumers were hungry for anything that gave even the impression of putting them in control of what seemed like an out-of-control energy market. Overall, PSE signed up 300,000 customers and gained a great deal of industry praise for its TOU pilot program.

However, more than 90 percent of the enrolled customers learned in mid-October that they had been paying more-an average of 81 cents per month more-than flat-rate customers had between July and September. With the financial incentive apparently gone, participants began leaving the program in droves.

Like a tattoo or a trendy haircut, Personal Energy Management seemed like a good idea at the time. For TOU pricing and other demand-side management programs to work, the utility must be able to provide a compelling financial justification for the consumer to shift his or her usage patterns. The energy crisis allowed PSE to do just that, and the result was one of the most celebrated demand-side management programs of all time.

However, once the market stabilized, the compelling financial justification was gone-and so were the program’s participants. That’s the way it often works with demand-side management initiatives. They look great when supply and demand are askew, but once the market settles into equilibrium, interest wanes.

That’s not to say that utilities should abandon the idea of TOU pricing (or, even better, “true” real-time pricing). I believe firmly that TOU-type programs will play a key role in the electric power business of the not-too-distant future. Don’t write off PSE’s program as a failure or flash in the pan.

Instead, realize that programs like PSE’s Personal Energy Management are prototypes. PSE intends to reevaluate its TOU program to see how it might be salvaged. Other utilities need to follow that lead and find a way to make time-sensitive billing economically attractive to consumers during both crisis and calm.

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Hard Times for Time-of-Use at PSE

Steven Brown
Senior Associate Editor

Puget Sound Energy (PSE) announced in early November that it would ask the Washington Utilities and Transportation Commission to end PSE’s time-of-use (TOU) billing program (see News, Page 8). At the time of this writing, it appeared likely that the request would be granted, and PSE’s “Personal Energy Management” program, once a poster child for the benefits of time-sensitive billing, would end amid heavy customer drop-outs.

PSE’s Personal Energy Management program was born in 2000 during the West Coast energy crisis. At the time, the cost of power during peak periods was as much as $145 per MWh higher than it was during off-peak periods. The idea behind the program was to offer customers financial incentives to shift energy use to off-peak hours through a tiered pricing plan. Customers enrolled in the program would pay slightly more than fixed-rate customers during peak hours, about the same during the midday hours, and less during off-peak, or “economy,” hours (9 p.m. to 6 a.m. and certain holidays).

By encouraging customers to shift consumption patterns, PSE could realize at least a couple of benefits: First, TOU customers who shifted high-energy tasks to economy hours would likely see a decrease in their monthly electric bill. Although the decrease would be minor, remember that PSE’s program began during a time when consumers were ultra-conscious of skyrocketing utility bills. A program designed to help customers lower bills would result in a measurable increase in customer satisfaction. (And, initially at least, it did.) Second, if enough customers shifted their usage off-peak, PSE theoretically could benefit by not having to buy as much electricity on what was then an extremely volatile wholesale market.

The program burst out of the gates a success. West Coast consumers were hungry for anything that gave even the impression of putting them in control of what seemed like an out-of-control energy market. Overall, PSE signed up 300,000 customers and gained a great deal of industry praise for its TOU pilot program.

However, more than 90 percent of the enrolled customers learned in mid-October that they had been paying more–an average of 81 cents per month more–than flat-rate customers had between July and September. With the financial incentive apparently gone, participants began leaving the program in droves.

Like a tattoo or a trendy haircut, Personal Energy Management seemed like a good idea at the time. For TOU pricing and other demand-side management programs to work, the utility must be able to provide a compelling financial justification for the consumer to shift his or her usage patterns. The energy crisis allowed PSE to do just that.

However, once the market stabilized, the compelling financial justification was gone–and so were the program’s participants. That’s the way it often works with demand-side management initiatives. They look great when supply and demand are askew, but once the market settles into equilibrium, interest wanes.

That’s not to say utilities should abandon the idea of TOU pricing (or, even better, “true” real-time pricing). TOU-type programs will play a key role in the electric power business of the not-too-distant future. So, don’t write off PSE’s program as a failure. Instead, realize that programs like PSE’s Personal Energy Management are prototypes. PSE intends to reevaluate its TOU program to see how it might be salvaged. Other utilities need to follow that lead and find a way to make time-sensitive billing economically attractive to consumers during both crisis and calm.