Hourly pricing to cut electric bills

In the latest wrinkle in a rapidly changing market for electricity, PPL Electric Utilities in Allentown has provided a strong financial incentive for residential customers to switch to a new hourly pricing plan.

The utility, which serves 1.4 million customers in eastern Pennsylvania, this week announced a new time-of-use pricing scheme in which residential customers could get discounts of up to 34 percent on power supply for consumption during off-peak hours.

The two-tiered pricing plan is a move away from flat rates, which have characterized electrical billing for the last century.

"The nice thing is that customers have these options that they didn't have before," said Ryan Hill, a PPL spokesman.

Time-of-use pricing is made possible with the growing installation of advanced electric meters that measure power consumption hourly - or even more frequently - so that the price can vary according to demand.

Under Pennsylvania law, utilities must move toward time-of-use pricing to encourage energy conservation. Peco Energy Co., the Philadelphia utility, filed a "dynamic pricing" proposal with the Public Utilities Commission in October and will begin installing "smart meters" next year, said Cathy Engel, a Peco spokeswoman.

PPL completed installation of an earlier generation of advanced meters in 2004 but needed several years to devise software to manage the massive flow of hourly rather than monthly data.

"We're following through on a promise we made to our customers," Hill said.

Time-of-use prices reflect the changes in wholesale costs for producing and transmitting electricity during peak hours, when more power plants are fired up and the electrical grid is congested.

By offering discounts for off-peak power - and charging a premium for peak power - utilities can reduce the need to build more infrastructure to handle short-duration spikes in consumption, ultimately reducing the overall cost of power.

"Time-of-use and dynamic pricing are really hallmarks of competition," said Silvio P. Marcacci, a spokesman for the Compete Coalition, an organization that lobbies to encourage competitive electricity markets.

While utilities have supplied variable pricing to commercial and industrial customers for many years, residential customers have not warmly embraced the option in the few utilities that have offered it to them.

PPL rolled out its time-of-use pricing last year, Hill said, but did not promote the plan because the off-peak discount was insignificant. Only about 450 customers signed up.

But PPL's new offering may appeal to bargain shoppers and customers who heat their homes with electricity.

Off-peak pricing, which during the non-summer months covers all but 5 to 7 p.m., will be 6.1 cents per kilowatt-hour. That's 34 percent less than PPL's current "price-to-compare" generation charge of 9.27 cents.

The price for peak hours will be 7.5 cents - still 19 percent less than PPL's current rate.

The downside to dynamic pricing is that from June through September, the peak hours will expand to 1 to 6 p.m.

Summer prices, which the utility says are typically much higher, will not be known until around May 1.

The time-of-use rates are not yet available to customers who have chosen alternative electric suppliers.

In Pennsylvania, customers can choose electrical suppliers, while traditional utilities such as PPL or Peco get paid to distribute electricity over their wires and electric meters.

But Hill said alternative suppliers could respond to the utility's initiative by offering their own time-of-use options, using the same meter data supplied by PPL.

Dynamic pricing may add to the choices electrical customers face - as well as the confusion. About 506,000 PPL customers have switched to alternative suppliers in the last year, a process that Peco customers are experiencing as the Philadelphia utility moved to market rates Jan. 1.