Wednesday, August 15, 2007

Smart (Market-based) vs. Dumb (Flat-Rate) Pricing

Most residential and commercial customers still pay their electric utility a flat rate (national average of 9 cents per kilowatt hour) multiplied by the kilowatt hours they use. That 's an example of a "dumb grid."

But with a smart grid in place, a utility can restructure rates, and then offer all its customers products that allow either the customer, or the utility, to control usage based on demand and hourly rates.

For example, maybe you 'd be ready to put off running your dishwasher until 3 a.m. if you could do it with electricity costing 5 cents a kilowatt hour, instead of 25 cents during the day at times of peak demand.

Read more about the increasing use of "smart grids" in


At 8/15/2007 11:05 AM, Anonymous Anonymous said...

Market-base pricing is currently used for industrial customers. Consumer’s Energy industrial customers are charged different electric rates in six-minute increments depending on the power-grid usage. These rates that range from $8.00 per kilowatt hour to .029168 per kilowatt hour. Here’s a breakdown per kilowatt hour:

Firm Excess capacity charge: 8.00
Excess Capacity Charge with discount: 3.20
On peak: 0.035168
Off peak: 0.029168
MISO Hourly Charge: 0.116514
Power Supply Cost Recovery: 0.015890

Our company starts electric motors up at 3:00 A.M. for use at 6:00 A.M. to save over $5000 per week in electricity charges. The Consumer’s bill for April was still $262,515.53, but that includes gas, too. How would you like to get that bill in the mail?

At 8/16/2007 8:00 AM, Anonymous Anonymous said...

Walt G., is your plant going to incur some extra costs from the renewable energy portfolio that our friends in Lansing are developing?

At 8/16/2007 8:48 AM, Anonymous Anonymous said...

I don't know about new costs because we tend to concentrate on lowering current costs. Just like homeowners, we find some of the easiest savings in the simple things such as turning off unused equipment and adjusting to proper lumination levels.

Since electric motors take five times as much electricity to start as they do to run, we can time our start-ups off peak for big savings. We’ve even moved some operations off-shift for energy- cost savings in the past. The cost savings result in at least some small measure of job security for our workforce.


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