Cut your demand and pay less for power

At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here’s an explanation for

Let’s face it, you can only shave so much off your electric bill by turning off the lights and insulating the front door.

Demand pricing might be the answer to your electric-budget angst. Under these programs, utility companies offer special deals to customers willing to cut back their usage during peak hours. If your electric provider offers demand pricing and you successfully manage your usage under the plan, you could save a bundle.

How does demand pricing work? There are a variety of permutations, but basically a utility company charges a higher rate during periods when the demand for electricity is greatest, for instance, on summer days when everyone is running air conditioners. The theory is that the utility must build enough power plants to accommodate this maximum demand even though most of the time its customers will be using far less. Customers pay for this additional capacity.

Sometimes under demand pricing, the utility charges a higher rate per kilowatt hour when you use power during the peak periods. Other times, you’ll face an additional fee above and beyond your energy usage based on the highest number of kilowatt hours you use in the course of a month, a week or even a day. Some utilities rely on a combination of these rate plans. Demand pricing generally is an option for consumers who are willing to be inconvenienced.

Dominion Virginia Power serves 2.2 million electric customers in the eastern part of the state and charges most of its residential customers .079 cents per kilowatt hour when they use less than 800 kilowatts of power per month; they pay .089 cents per kilowatt hour when their usage climbs above that. A Dominion customer using 1,000 kilowatts per month on this standard rate plan would pay $81. Then there is a demand charge — which could be substantial — added to the total, a flat fee calculated on the highest amount of electricity a customer uses during peak times.

But Dominion also offers an alternative demand rate payment plan for those who are willing to pay attention to the times during which they use power. It’s reminiscent of long-distance phone plans where you get lower rates for making calls at specific times of the day.

For utility customers who choose Dominion’s time-of-use plan, the utility charges .03 cents per kilowatt hour off peak and a whopping .16 cents per kilowatt hour for on-peak usage. Peak hours during the summer air conditioning season are 11 a.m. to 10 p.m. Monday through Friday. Weekends are off peak. Peak hours during the winter are slightly different. You’ll face a demand charge under this plan, too, but it presumably will be lower because you’re making an effort to use less on-peak power.

It’s difficult to determine just how much an average electric consumer might save with demand pricing because of all the variables. Only a fraction of Dominion’s customers, around 10,000, opt for this plan because as Irene Cimino, a company spokeswoman says, “It has to fit into your lifestyle.”

Monitoring pays off

However, there are ways to beat the utility at its own game. Jack Greenhalgh of Virginia Beach, Va., thinks he’s done that and that you can do it too by both paying attention and installing an electronic monitor.

Greenhalgh, who is a member of the consumer advisory board on energy deregulation in Virginia and a potential reseller of electricity when deregulation makes that feasible, has three heat pumps and two hot water heaters in his 3,000-square-foot house. When all of them are running simultaneously, his house pulls nearly 40 kilowatt hours of power, enough that if he paid full price on the standard rate plan, his bill would be more than $200 per month.

To keep his bills below that, Greenhalgh monitors his demand with a built-in energy monitor. His particular device is an Energy Sentry made by Brayden Automation Corp. in Fort Collins, Colo. It is one of the more sophisticated models and recommended by numerous utilities, but other companies sell similar devices. When shopping for one, check out the features to make sure it will do what you want. Some monitors, for example, will tell you how much power your stove is drawing. That might be useful if you’re trying to decide whether to buy a new one.

Greenhalgh’s monitor evens out his home’s demand for electricity by controlling when and how often high-voltage appliances are used. The Jacuzzi won’t come on when the oven is operating; the water heater won’t cycle while the refrigerator motor is running. And neither the Jacuzzi nor water heater will run when the air conditioner is pulling power.

For the most part, these delays are invisible to him and his wife, Greenhalgh says, and not an inconvenience. “The only thing that we do that other people may not do is use the clothes dryer during off-peak hours,” he says.

In Greenhalgh’s case, the savings are pretty dramatic, cutting his power bill about 30 percent or $800 per year. Brayden sales manager Kent Mueller says Greenhalgh’s experience is typical; some homeowners save even more if they live in the kind of climate where winter heating rivals summer cooling bills.

Installing the equipment, however, isn’t cheap: between $1,000 and $2,000 based on the size of the house. And it’s not a do-it-yourself project unless you’re a licensed electrician.

Some utilities such as Otter Tail Power Co., which sells power in Minnesota, North Dakota and South Dakota, will lease Energy Sentry monitors at a nominal rate. Mueller says customers who decide to purchase a monitor instead of leasing should see a payback in less than two years and they can take the equipment with them if they move.

Demand pricing not in universal demand

Unfortunately, demand-based pricing is nowhere near universal. Mueller estimates that fewer than 20 utilities nationwide offer it. And some that once offered it have backed away.

“Some worry about revenue erosion,” says Kim Pederson, manager of market planning for Otter Tail. But her calculations are different. In the states where Otter Tail does business, there haven’t been rate-increase approvals in more than 20 years; the utility hasn’t built new plants and that has made conservation more attractive so that the company can meet service needs without facing shortages.

Otter Tail has persuaded 40 percent of its customers to adopt some sort of demand-based pricing. If demand pricing appeals to you, call your utility and ask if it’s available. If you live in a deregulated state like Texas, ask all the power resellers who are courting your business whether they offer the alternative-pricing plan.

Even if your electric company answers “no,” you may want to keep asking. So few people take advantage of this kind of pricing that customer service representatives might not know it exists, says Harvey Michaels, CEO of Nexus Energy Software, a company that partners with utility companies to provide information about energy-related services. His company’s Web site offers a database that uses your ZIP code to link you to any money- or energy-saving offers from your utility company. A demand-based pricing plan may be among them.

Michaels is an advocate of demand pricing and believes that it’s much more fair.

“Without it, it’s like the grocery store charging by weight so you pay the same for cat food and caviar. There’s no reason why people who leave the air conditioning on when they’re not home shouldn’t pay more than people who turn it off.”

Jennie L. Phipps is a contributing editor based in Michigan.