Davis considers plan to require fluctuating power rates for businesses

Posted at 8:55 p.m. PST Saturday, Feb. 24, 2001

BY TRACEY KAPLAN

Mercury News

As California scrambles to avoid rolling blackouts this summer, lawmakers are studying a conservation incentive familiar to anyone who's paid extra to make a daytime long-distance call or stay in a hotel in high season.

What if consumers paid more for electricity when demand is high, but less when it drops?

But instead of changing daily or seasonally, the rates would vary hourly or more frequently for 50,000 businesses under a proposed mandatory plan being considered by Gov. Gray Davis at the urging of energy experts at the University of California.

The concept, known as real-time pricing, helps prevent energy shortages on hot days in Georgia as businesses there react to rate spikes by cutting back on production, lighting and air-conditioning. In California, real-time pricing would begin with industrial and commercial users ranging from warehouses to high-tech companies, and could eventually expand in modified form to residential ratepayers.

``It is an intriguing idea,'' said Steve Maviglio, Davis' spokesman, adding that administration officials are exploring the feasibility and cost of rapidly implementing the system.

A tiny percentage of California residents and businesses now pay different rates depending on the time of day. But the prices are not tied to actual market costs, and they change only two to three times a day rather than hourly. Under that program, residential customers who are willing to pay higher rates from noon to 6 p.m. in exchange for a discount the rest of the time must buy a special meter for $277, including installation.

Incentive to conserve

By converting businesses to the new pricing system, the state could save up to 4,000 megawatts, enough to power 4 million homes, during peak periods, putting a huge dent in the projected summer deficit of 5,000 megawatts, said Severin Borenstein, director of the University of California's Energy Institute. The system would cost $50 million to $100 million to implement, a small price considering the benefits of allowing businesses to respond to market conditions, he contended.

``The state is spending $50 million a day buying power,'' Borenstein said. ``This would be incredibly effective in reducing rolling blackouts because it would give businesses a very strong economic incentive to conserve.''

Georgia has shaved 5 percent off its summertime peak of about 15,000 megawatts with the system, said Jon Kubler, rates manager for the state's largest utility, Atlanta-based Georgia Power Co. Only 1,650 businesses are enrolled in the program, which began in 1992.

But consumer activist Harvey Rosenfield, a longtime opponent of deregulation, said small businesses and residential ratepayers need stable rates.

``I look at this as a propaganda tool to force us to accept that electric prices are volatile and I say, no, let's go back to the system we used to have, which was steady, reliable and publicly accountable,'' Rosenfield said.

Setting up the new pricing system in time for the summer presents significant challenges, not the least of which is that each of the 50,000 businesses have to be equipped with special electric meters, Borenstein said.

There are only about 150 people in the state qualified to install the meters, Borenstein said. Either more installers would have to be trained or the existing ones would have to work at a furious pace to succeed by July.

The coffee-can-sized meters, which cost up to $3,000, gather data about how much power is being used and transmit it via a radio signal or modem to a special computer at the utility. No additional radio towers or telecommunications equipment would be needed to implement the system on a large scale in California, said Randi Nelson, marketing director for Itron Inc., a leading provider of data acquisition and wireless communication solutions for the energy industry.

But a system to post hour-by-hour prices on the Internet would have to be set up because the Power Exchange, which used to track wholesale prices, has been shut down. Companies could check the prices to see if they wanted to conserve and save money.

Two leading consumer groups, the Utility Reform Network (TURN) and Consumers Union, tentatively support the proposed rate structure. But they are concerned about the cost to the state.

``This is a responsible, environmentally friendly experiment that should work,'' said Harry Snyder, of the Consumers Union. ``But the state shouldn't subsidize the cost for businesses. They should make it a loan with interest.''

Officials with the Silicon Valley Manufacturing Group and the California Chamber of Commerce like the idea as long as residential consumers also bear the cost of failing to reduce consumption. ``We support it but our concern is everyone move in it together,'' said Dominic DiMare, the chamber's lobbyist. ``Right now there's this protective bubble over residential consumers.''

Business leaders also fear that real-time pricing could prove expensive for firms in the Central Valley where air-conditioning is essential, or for companies in industries such as milk processors that can't easily shift production during peak times.

Borenstein said the new rate structure would actually drive down prices because demand would not outstrip supply by as much. Advocates say the plan could be crafted to take climate into account.

San Diego Gas & Electric support the idea and has applied to the California Public Utilities Commission for permission to offer it to businesses that use 100 kilowatts or more, which includes office buildings of 10,000 square feet.

A spokeswoman for Pacific Gas & Electric declined to comment on the utility's position.

Resident sees lower bills

In the meantime, PG&E is still offering residential customers who can afford the $277 meter two rates based on the time of day. Only 100,000 residents of the utility's 4 million residential customers are taking advantage of the program, including Portola Valley resident Richard Tryce. He got the meter five years ago for a discount under a now-defunct offer. His bills have been as much as 18 percent lower since then.

``Just asking people to cut back, they're not going to do anything,'' said Tryce, a retired executive. ``But if their costs were owered, then guess what? They'd conserve.'' Except for one thing, he said. ``That entry fee -- $277 -- kills the incentive to join.''

-- Swissrose (cellier3@mindspring.com), February 25, 2001

Answers

With power rates scheduled to make a big jump in May, time has run out. They are never going to make it.

-- Billiver (billiver@aol.com), February 25, 2001.