Uber But For Energy: Utility Surge Pricing Threatens Summer Cool
The air conditioner at Jim and Julie Powell's house has been fending off the 100-degree summertime heat for two decades — ever since they came to the Sun City retirement community just west of Phoenix.
"It's been a workhorse," Julie says. "It's probably 20 years old, but it does the job."
Inside, Jim leafs through their summer bills from the power company Arizona Public Service, or APS. He counts: "$183, $262, $250."
Steep, but predictable. Ever since he's heard about a new fee, though, he's begun to worry.
"With this demand charge, it could be out of the blue, every month something different," Jim says.
For that so-called "demand" charge, the power company will look at the one hour of the month during peak time when the couple uses the most energy.
This kind of rate's been around for decades — mostly for commercial operations, though as of 2015 at least 14 utilities across the country offer it to residences as an option, according to the Rocky Mountain Institute. But APS would be the first utility in the country to mandate it for almost all residential customers.
Julie peers at the old unit from the shade of her back porch. Like many here, they keep close tabs on their electric bill during this time of year.
"I'm a turn-the-fan-off, turn-the-light-off, turn-everything-off person," she says.
But those energy saving efforts may soon not be enough.
Jim wonders what happens if they turn up the AC one evening, while the oven and washer are running.
"All of a sudden we've spiked our kilowatt usage way up from what it normally is for a short period of time, but yet we're going to get stuck with a bill for that," Jim says. "And I don't think that's right."
The Powells aren't the only ones upset.
Within a week of the utility proposing the charge, protesters had taken to the streets with signs like "Surge Pricing is Unfair" and "Profits Over People."
"It's not as complicated as some make it sound," says Stefanie Layton of APS. "Really, if you just stagger the use of your major appliances, that's an excellent way to manage your demand."
Layton says the charge gives customers another tool to actually save money, but acknowledges some will not.
"It better aligns how much customers pay with the costs they impose on the system," she says.
Most of a utility's costs are fixed — things like substations, transmission lines, power plants. All that infrastructure must be in place for when demand spikes. APS hopes to encourage customers to put less strain on the grid, especially during summer afternoons and evenings.
"In order to send customers a signal that says our costs are driven by demand, if you can lower your demand, you can lower your costs," Layton says.
James Sherwood, who studies rate design at the Rocky Mountain Institute, says there's a void of data about how residential customers respond to this kind of rate.
"There are still a lot of unknowns around this and whether demand charges send a price signal that is effective," he says.
But more utilities might use demand charges as they adjust to new technology. "Like rooftop solar and batteries and things like that, which are coming onto the market in a way that people can afford them and adopt them," he says.
He says energy use has shifted to more appliances later in the day, which drives up the utility's costs.
About 10 percent of APS residential customers voluntarily use a demand charge, and the utility says most are saving money.
"It's certainly good for the company," says Pat Quinn, one of those volunteers. But he isn't happy.
Quinn is a former consumer advocate for the state and says demand charges lead to unexpected swings in the monthly bill. In fact, last year, his charge varied month to month from $30 to $150.
"Think if you're somebody that's basically homebound," Quinn says. "You need the air conditioner in the summer. You may not have an option to change the way you're actually living."
After all, rates aren't just about recovering costs; they also need to work for customers. Whether this kind of charge can do that will be the question facing regulators in Arizona and across the country.
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