Time-of-Use Rates Can Lead to Energy Efficiency

To address the changing energy landscape, utility companies have been proposing new rate models that may affect electric rates and consumer engagement in energy efficiency, according to recent research from The American Council for Energy-Efficient Economy.

These proposed models break away from the two-part rate pricing – composed of a fixed monthly charge and a rate based on electricity usage in kilowatt per hour – which has been the industry standard for many years.

Customers respond to energy rates that vary based on time of day and season, especially critical peak pricing and time-of-use rates. And while such time-varying rates helped reduce peak demand, customers also reduced consumption, according the council’s March report Rate Design Matters: The Intersection of Residential Rate Design and Energy Efficiency.

Average peak demand reduction was 16 percent, and overall consumption reduced 2.1 percent, according to a comprehensive study of 50 time-varying price models reviewed in the council’s report.

The council’s research also revealed that many proposals could increase customer charge as high as $70 per month. The average proposed rate increase from 2014 to January 2017 was 61 percent. However, with a push-back from consumers, the average increase actually approved was only 15 percent.

The study concluded that of these rate model proposals, time-of-use rates – prices that vary based on time of day and season – is a better option to allow customers to efficiently use electricity and understand energy bills.

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