The Sacramento Municipal Utility District is weighing a rate increase that will cost the typical residential customer between $2 and $4 more a month by 2015. That may grab people's immediate attention. But what is far more significant is the farsighted change in the way SMUD is proposing to charge for electricity in future years.
The change being considered time-of-use pricing would require the SMUD board's approval and wouldn't be implemented until 2018 at the earliest. Still, by tying electricity pricing to the periods households are using electricity, SMUD would be sending the right message to its customers about when to power down to save money for themselves and reduce stress on the district's grid.
As most of us know, the highest demand for electricity comes on hot summer days between the hours of 4 p.m. and 7 p.m. That's when most people get home from work and crank up their air conditioners. Because of the surge in demand, it costs SMUD more to generate and purchase power during those peak-use hours. In extended heat waves, dangerous stress is placed on the system and the risk of brownouts and blackouts increases.
Under the proposed change, customers would pay more during those peak summer hours, 4 p.m. to 7 p.m., and less during off peak hours, midnight to 4 p.m. and 7 p.m. to midnight. That means a family could save money, for instance, if they waited until the evening to wash and dry two loads of clothes, instead of doing it during the peak period.
It's a big change from the way the utility charges residential customers now. Currently, households pay a lower base rate, 9.5 cents per kilowatt hour for the first 700 kilowatts they use in a month. They pay almost double that amount, 18 cents per kwh for any power they use above 700 kilowatts. But that pricing regimen does not accurately reflect SMUD's cost of generating power. The utility pays more during times of heavy demand and less when demand recedes.
The current system results in heavy users unfairly subsidizing low-use customers who use a disproportionate amount of electricity during times of peak demand. It sends the wrong price message to customers.
Under the SMUD staff proposal, the change to time-of-use pricing would begin with a gradual four-year phaseout of the two-tier pricing system. If the board approves the changes proposed, by 2017 all residential customers will pay the same price per unit of electricity no matter how much they use. And beginning in 2018, customers would pay higher prices during peak summer hours.
New technology, specifically the 600,000 smart meters SMUD installed over the last few years, has given the utility the ability to measure not just how much electricity its customers use but, most critically, when they use it. That allows for more efficient use of electricity, which means SMUD can avoid building new power plants. That not only minimizes the utility's carbon footprint, it saves money for SMUD and its customers.