Dynamic Pricing Empowers Low-Income Households

Dynamic pricing is a term used to describe a key feature of competitive electricity markets. Put simply, electricity costs vary so power is cheaper when demand is low and more expensive when demand is high.
 
Now, a new report finds dynamic pricing significantly benefits low-income customers by empowering them to take control of, and reduce, their electricity bills. The report from the Institute for Electric Efficiency (IEE) challenges the prevailing view that low-income customers would be harmed by dynamic pricing and makes a strong argument for widespread adoption of one of the biggest economic benefits of competitive markets.
 
Statistics from five existing pilot programs prove real-time price signals allow low-income consumers to reduce their costs in multiple ways, according to the report. First, IEE found low-income customers typically use less energy during peak hours so their flatter-than-average load profiles create immediate benefits from a rate that increases during peak hours. Second, results from the pilot programs found low-income customers responded to dynamic rates with an average load reduction greater than 10 percent.
 
The existing pilot programs were geographically diverse, with two programs in California and one program each in Maryland, Connecticut and the District of Columbia.
 
The overall result is remarkable – 80 percent to 90 percent of low-income consumers reduced their bills by adjusting their power use in response to price signals. Furthermore, 70 percent of those who did not respond to dynamic pricing still experienced a decline in their monthly bills. “Consumer advocates and regulators typically will not approve dynamic prices because their biggest argument is that they’re going to hurt low-income people,” said Lisa Wood, IEE Executive Director. “But the evidence from the pilot programs proves otherwise.”
 
Dynamic pricing is a hallmark of competitive electricity markets and a shining example of how competition delivers economic and environmental benefits. By driving power suppliers to provide the best possible service to attract and retain customers, market forces also empower customers to make smart choices about their own energy consumption. Policymakers have already explained how dynamic pricing enables smart grid technology and helps reduce emissions, and we’re glad IIE has added their voice to such an important debate.

Joel Malina | July 13, 2010