Electric companies offer free nights, weekends to cut costs

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Posted: Monday, August 19, 2013 12:00 am

NEW YORK (AP) — Electric bills have long been take-it-or-leave-it affairs: Pay one rate for all the power you used the month before, no matter when you used it.

But some electric companies want to shake up that rigid business model. They are increasingly offering plans that sound like come-ons from mobile phone companies: free nights, free weekends and prepaid plans.

“We are seeing a transformation in the way people buy and use electricity in the U.S.,” says Steven Murray, president of Direct Energy's residential energy programs.

The more customized plans are made easier by the growing use of digital meters that wirelessly link electric companies and customers, allowing both to track usage in real time. Digital meters have not only spurred competition, they have also enabled traditional utilities to reduce their costs by encouraging customers to use electricity during off-peak hours, when it is cheaper.

Forty-two percent of U.S. electric customers have digital meters, up from less than 5 percent in 2008. In 2015, more than 50 percent will have them, according to Navigant Consulting.

This new breed of electric plans comes with risks.

Customers can end up paying a lot more for power than they expected. Some plans offer low introductory rates that can quickly skyrocket. Others have high early-termination fees. Some fixed-rate plans are a great deal if power prices rise, but they may seem awfully expensive if prices fall.

If customers are careful, though, they can pay less.

Dorothea Miller of Sinking Spring, Pa. signed up for a Direct Energy plan that gives her one day of free power every week. She picked Saturday, and now saves as much of her housework as she can until then. She stops short, she says, of letting mountains of dirty laundry or dishes accumulate in anticipation of Saturday's free power.

“We pretty much run things the way we did before the plan, but now we set our dishwasher to go on after midnight (Friday) and do most of our laundry on Saturday,” she says.

TXU Energy offers a similar plan to Texas customers that offers free power every night from 10 p.m. until 6 a.m., or free power Saturdays and Sundays, in exchange for a higher rate during other times.

Customized plans are most prevalent in the 13 states and Washington, D.C., where regulators have allowed companies to compete to sell electricity, but they are also popping up in other states.

Electric competition has been around for more than a decade, and utilities have experimented with pricing plans for even longer. But digital meters have made these plans easier to offer and manage. They are being installed around the world; utilities in China, Japan and across the European Union have aggressive plans to expand the use of digital meters.

In the U.S., companies have different motivations for offering innovative plans. Traditional regulated utilities are trying to reduce stresses on their grids. Upstart power providers are trying to lure new customers.

In both cases, they are trying to get customers to use less electricity when it costs more. Wholesale power prices fluctuate depending on the time of day, from zero overnight to thousands of dollars per megawatt-hour during a hot day.

Yet most customers see one average price every month, a price that includes those sky-high peak rates. With plans that offer prices that vary based on the time of day, customers can avoid high-cost power in the same way air travelers can save by not flying on the Wednesday night before Thanksgiving.

Power providers use fleets of pushy door-to-door sales people, pop-up-booths in malls and tens of thousands of mailed fliers to sign up customers. But it can be difficult to get people to switch because most people don't think about electricity unless they lose it, and the cost of electric bills isn't a major concern.

U.S. power prices have been mostly flat or declining since the mid-1980s, adjusted for inflation. A typical residential customer spends $110 per month on electricity. That's one-third the average amount spent by a family on gasoline.

Power providers have only had success attracting customers in the past when electricity prices are falling sharply because they can offer a quick, obvious savings compared with what the traditional utility offers. But now that 60 million customers have digital meters, they can offer plans that help customers save money based on how and when they use power.

Direct Energy ran a simple, silly TV advertisement pitching its free power day that included a woman blow-drying her golden retriever — why not, if the power is free? Oklahoma Gas & Electric offers a plan called “SmartHours” that offers lower rates to customers who cut back on power usage during hot summer afternoons, along with a thermostat that can adjust itself based on electricity prices.

“To differentiate yourself you have to craft a product that makes things easier,” says Bill Massey, a former federal energy regulator now at the Compete Coalition, a group that lobbies to expand competitive electricity markets.

Companies are offering prepaid electric plans that, like prepaid mobile phone plans, can be cheap and include no sign-up fees or deposits. Customers get text and email alerts when they've used most of the electricity they've paid for. By paying attention to their use they use less, which lowers their bills further. Prepaid customers can have their power cut more quickly, though, if they have trouble paying for more electricity. In Texas, for example, if a prepaid balance falls below a certain level, power can be cut in as little as a day after the power provider issues a warning.

“Some (new plans) will be good for some people and some will be very, very bad for other people,” said Janee Briesemeister, a senior legislative strategist who works on electricity issues for the AARP. “It's even more confusing than shopping for a cellphone contract.”

Copyright 2013 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

© 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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