An exercise in utility: real-time electricity

Over the past two years, our family has taken some steps to reduce the impact that utility bills have on our bottom line.  This partly came out of necessity, and partly to lay the groundwork for future finances.  In the next couple of weeks, I will review how these performed, and hopefully give you some idea as to whether they might make sense for you as a consumer.

About two years ago, we changed our electricity service from ComEd's flat-rate program to a program called Residential Real-Time Pricing.  We did this for two reason.  First, at the time, the City of Chicago had moved to aggregate all residential customers under a single, flat-rate managed through the City, and second, a local community member had just a year previous mentioned that she worked for the program and gave me some details on how it worked.  This combination of opportunity and familiarity made the decision simple for us.

From my point of view as a consumer, the straightforward program looks no different when paying my bill.  Like either the ComEd flat-rate program or the City's flat-rate program, I receive only the one bill from ComEd that I pay each month.  The difference comes from how ComEd computes the supply portion of the bill.

Taking a quick step backward, each bill you receive as a utility customer has charges for the electrical energy you use (supply) and for the maintenance of the cables and infrastructure that bring the energy to your home or business (delivery).  Except for a few municipalities, ComEd delivers all the electricity to the residents in Northeast Illinois, and that delivery charge only changes when ComEd gets approval from the Illinois Commerce Commission to change it; otherwise, the consumer has no way of changing it.  The supply portion of the bill has changed greatly in the last decade or so.  Prior to 2000, residents paid for the supply of energy the same as delivery - through a rate set by the utility and approved by the ICC.  When the state deregulated the electricity market, that changed, and the utilities no longer produced electricity, they merely provided the infrastructure.  For a long time, they entered into contracts on behalf of their customers, but still did not own the assets.  In recent years, energy suppliers have marketed directly to residents, or to cities through aggregation, to completely sever the utility from all supply issues except for billing.  It is this supply portion that consumers can affect.

Back to my bill, on a flat-rate bill, the total energy used for the month gets multiplied by a flat-rate (or sometimes two rates...one for "peak" times and one for "off-peak" times) to determine the supply portion of the bill.  In the Real-Time program, the usage for each half-hour gets multiplied by rate for that specific half-hour in order to determine how much we pay.  This means that for some half-hours, we pay much more than the flat rate, but that for many, we pay much less.  It also means that if we have information on when rates most likely will top out over the flat rate, we can decide whether or not to use certain energy-consuming equipment like dishwashers and washing machines.  Instead of paying 5 cents (the flat rate) or 14 cents (a high-demand peak rate), we can pay as little as 2 or 3 cents per kilowatt-hour for the electricity.

So how did we do with this volatility of pricing?  All in all, pretty well.  For calendar year 2013, we spent about $500 for the year on electricity....or about $0.015 per square foot per month.  If we had remained in the ComEd flat-rate program, we would have spent $580 for the year (or $0.017 per square foot per month), meaning we saved about 14% on our annual bill.  [Side note, since we started the program in May of 2012, we have saved about 35%, but that comes from higher prices from old ComEd contracts in 2012 that changed in 2013.]  We have been happy with that savings, but the average ComEd RTP customer has done even better.  Over the same time period, the average customer has saved about 28% on their electricity supply through the program or about $240 per year.

Our performance relative to the average does not affect our satisfaction with the program.  First, the lowest aggregation rate saves somewhere between 2 and 8% relative to the ComEd flat rate, so we have not missed any opportunity.  Second, the average usage by a resident in the program sits around 12,000 kWh per year; on average, we use 3,500 kWh per year, so although they save more, they also spend more.  Given that the average sized home in the City sits somewhere between 1,400 and 2,000 square feet, they pay approximately $0.03 per square foot for the year.  Because much of this comes from equipment we do not generally use - air conditioners and second/third televisions - we have fewer items to shift, and therefore realize less savings.

I will talk more about home efficiency (which leads to why our usage sits far lower than average), but even at our low usage, real-time pricing makes sense.  The program sends us text messages when prices will exceed our threshold so we can take action, and provides us with a web portal to view our usage and day-ahead predictions of price.  I have used it only as an occasional check on our lifestyle, so it has not added any real work to achieve the savings.  If one has a larger bill, they can realize significant savings, even without significant effort; if one wanted to put more time in, they could far exceed the average savings of 28%.  An additional $240 to $500 a year can be an additional .5% to 1% increase in available cash for a median family.  In a tight economy, that makes a difference.

Next up:  Energy efficiency and our natural gas bill