By unanimous votes in both chambers, The Illinois General Assembly last week became the first legislative body in the U.S. to mandate that utilities provide residential consumers the option to access hourly, market-based electricity prices. The measure requires utilities to begin offering the real-time pricing option by January 1, 2007 as part of a program that would include customer education and support to assist consumers in managing their energy use and costs.
“We’re excited by this initiative, because it will give consumers a choice. This new option will benefit consumers and the environment, and it will help make the electricity system work better and cost less,” said Kathryn Tholin, manager of the Community Energy Cooperative, which has operated a pilot real-time pricing program in northern Illinois since 2003. “Our experience with the pilot program shows that, with the right kind of program and information, this kind of rate choice can enable consumers to significantly reduce their costs. It can help people understand their electricity use and become more energy efficient.”
The measure, Illinois Senate Bill 1705, was sponsored by Sen. Don Harmon of Oak Park and Rep. George Scully of Crete. During discussion, they emphasized the fact that Illinois and other states are facing rapidly rising energy prices, and it is important to find ways to help consumers manage their costs. Consumer advocates agree that this measure will benefit Illinois households.
“Real time pricing is an important choice for small consumers,” said David Kolata, Executive Director of the Citizens Utility Board, a statewide consumer organization. “Until now, only big customers had access to this kind of option. While it’s not the plan for everyone, it will give many households the opportunity to save money and create an incentive to reduce demand.”
The General Assembly’s action in passing Senate Bill 1705 recognized that managing and reducing peak demand has the potential to create system benefits, and that residential customers participating in real-time pricing programs can play an important role in creating those benefits.
The General Assembly specifically recognized that economic benefits of reducing demand include, “improvements to system reliability and power quality, reduction in wholesale market prices and price volatility, electric utility cost avoidance and reductions, [and] market power mitigation.” To the extent that customers reduce the peak time use of electricity-overall peak prices will decline, ultimately reducing costs for all customers. The legislation also calls for the Illinois Commerce Commission to assess potential system benefits and authorizes the commission to incorporate costs of the program in the overall rate base.
Under the provisions of the legislation, customers who select real-time pricing would pay an hourly rate based on the actual market price of electricity. This means that power would be much less expensive than the average rate most of the time when demand is low, and prices would rise during the periods when demand is high. Consumers can reduce their bills by using cheap off-peak power and reducing their use during peak hours when prices are higher. In addition, the measure passed by the General Assembly requires utilities to provide consumers who select the real-time rate with information and assistance to help them manage their energy use and costs.
This is similar to the structure of the Community Energy Cooperative’s pilot Energy-Smart Pricing Plan (ESPP), the nation’s first extensive residential real-time electricity pricing program. The Cooperative has operated the program in conjunction with ComEd since 2003. Households that signed up for the real-time rate receive price information, notifications when prices are high, and advice on managing costs. During the three years of the program, participants have saved an average of approximately 7 percent, and have reduced their peak electricity demand by as much as 20 percent. There are currently 1,200 households participating in the program.
Experts agree that even small reductions in demand during peak periods can result in lower prices and reduce the cost of service for everyone. Expansion of real-time pricing across Illinois will enable utilities and consumers to realize those benefits. Illinois Senate Bill 1705 is now awaiting the governor’s signature.
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