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Could flat-rate electricity bills soon be an option for energy consumers?

Jordan Smith
By Jordan Smith November 8th, 2021
4 min read

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The typical electricity bill varies depending on how much energy you use. For over a century, customers have paid for every kilowatt-hour of power they consume. That model could be about to change as new technology alters how we use energy. Some utilities are even considering charging customers a flat monthly rate for their power usage.

A pilot project involving tech firm Uplight is currently underway to test the flat-rate billing model. Three utilities, including Duke Energy in North Carolina and AES in Indiana, launched the program in March 2021. The Plus program offers several additional incentives, such as smart thermostats and energy efficiency upgrades.

The program could prove attractive for customers because it gives them a predictable cost for electricity each month. Bill payments are packaged like a subscription to popular streaming services, such as Spotify or Netflix.

But some utilities think they can also profit from the fixed-price model. One reason for this is that the pilot program gives utilities more control over when customers use their electricity. For instance, a utility could adjust a participating customer’s thermostat by one or two degrees, or stop a washing machine from running during peak demand. This flexibility may help utilities reduce their reliance on peaker power plants. Peakers are often expensive to maintain and power up at short notice.

Akshaya Jha, an energy economist at Carnegie Mellon University, explains, “(T)his is less about a flat rate per se, but about saying to customers, ‘You get a better rate in exchange for letting us control more. ‘”

Controlling supply and demand

More control for a utility over supply and demand can also help green the power grid. Peaker plants are typically powered by gas and coal, which emit carbon. If utilities can keep the lights on by reducing peak demand instead of increasing power generation, greenhouse gas emissions will drop. This approach is known in the industry as demand response.

The potential impact demand response programs can have was shown in a report from the American Council for an Energy Efficient Economy earlier this year. The group found that if seven demand response policies were adopted “aggressively” in Texas, summer peak demand could decline by 7,650 megawatts. Winter peaks would drop by 11,400 megawatts, they noted.

The option of a flat-rate electricity plan could act as an incentive for customers to become part of a utility’s demand response initiative. One of the barriers to broader uptake for demand response so far is that start-up costs are off-putting. For instance, a customer may have to pay expensive installation fees to get a smart meter. This cost may seem more acceptable if a ratepayer benefits from the simplicity of paying the same amount for their electricity each month.

Broader debate about new billing structures

The pilot project is just one example of how electricity billing structures are changing. Other models are far more advanced.

In California, utilities offer customers time-of-use (TOU) billing options. TOU billing charges customers different rates for electricity usage throughout the day, depending on overall demand. This approach differs from the traditional tiered billing model. Tiered billing charges customers a fixed rate for every kilowatt-hour of power they use up to a certain limit. Above that limit, the cost per kilowatt-hour increases.

California’s three large investor-owned utilities, Southern California Edison, San Diego Gas & Electric, and Pacific Gas and Electric, have begun moving customers to time-of-use plans. For example, Edison has already moved 1 million residential customers to the new billing model, with 2.3 million more ratepayers to follow between November 2021 and April 2022.

California’s peak demand occurs between 4 p.m. and 9 p.m. each day. That’s also a time period when solar generating facilities produce less energy. “Time-of-use plans encourage people to use energy at the times of day when renewable energies, like solar and wind, is the most abundant and at the lowest cost,” a letter from Edison states. “With small changes in your energy habits, you can save money and help our state meet its clean energy goals.”

What does this mean for me?

The test of flat-rate billing that’s currently underway probably won’t affect you too much immediately. Only about 4,000 customers across three utilities are involved in the pilot project. However, the general trend away from traditional electricity billing structures is gathering pace. If the trial goes well, flat-rate electricity billing could become more widely available in the years ahead. If that happens, you’ll need to decide whether you’re prepared to grant your utility a bit more control over your home’s electrical appliances in exchange for a simpler billing model.

Jordan Smith is a writer and researcher with expertise in renewable energy and deregulated energy markets. Jordan has written extensively on the deregulated energy market in Texas and the challenges confronted in the clean energy transition, and conducted research projects within the energy industry. Further articles by Jordan can be found at SaveOnEnergy.com.

 

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