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Posted on October 21, 2010
By Steve Stewart
As we enter the smart meter and time-of-use rates (TOU) era here in Tallahassee, and in fact, throughout the United States, the debate over who benefits more, consumers or the utilities, will be front and center for years to come.
Time-of-use rates are designed to make the delivery of electricity economically efficient by charging a different price for electricity during certain times of the day. The City of Tallahassee is testing a voluntary pilot program that charges more for electricity from 7 a.m. to 7 p.m. and less from 7 p.m. to 7 a.m.
Experts say that the current practice of one rate for all hours of the day for electricity does not capture the “true costs” of the resource. In other words, the City of Tallahassee –through time-of-use rates – strives to price electricity so that those who use more of the resource will pay more.
Beyond the question of who benefits from time-of-use rates, the City of Tallahassee is embarking down an “optimal efficiency” path that has very interesting implications for how government delivers services.
Usually, optimal efficiency in pricing is left to the free market because with government services, such as public transportation and public works, the connection between how much of a service someone uses and pricing, gives way to the benefit delivered to the public as a whole.
If government starts moving toward optimal efficiency in the delivery of services, does this mean that only those who use Star Metro will pay for the service? How about parks and schools? In the name of efficiency will there be a family services fee?
Now if you haven’t noticed yet, this is the same approach that insurance companies use to squeeze every bit of profit out of each dollar of premium paid. This leads insurance companies down the path of trying to find out as much as possible about your health so they can put you into a group. A group that is then charged based on how much health care you may use.
Now this approach comes to electricity. The City of Tallahassee, since the implementation of smart meters, has begun to track the usage patterns of each customer. Eventually, smart meters will be able to tell the City when your AC is on and when your washer and dryer are running. Based on your usage and the time of your usage, the city will determine various pricing structures to efficiently collect revenue.
What some policy makers fail to see with optimal efficiency is that such an approach clearly defines winners and losers. And there will be winners and losers with time-of-use rates. To say that everyone will win with these rates is a fallacy. Actual results from across the country have indicated that the losers will be businesses, stay-at-home parents, those with low incomes and senior citizens. Winners are those who can take advantage of not needing electricity during the day.
The City of Tallahassee has indicated that there will be programs to help out those that do not benefit from time-of-use rates. This means there will be financial assistance, which brings us back to the original question of costs and benefits. Why embark down the path of optimal efficiency if you are going to go back and help out those, who due to the increase in efficiency lose out on benefits?
The pursuit of time-of-use rates for electricity by the City of Tallahassee will surely provide fertile ground for the debate on when the strive for efficiency should give way to the benefits that serve the public good.