Monday, August 24, 2009

Who Turned Off the AC?

Pepco our local utility sent us an offer in the mail to participate in their energy wise program. I decided to consult my in home energy expert, my wife, to figure out what this is all about. So here’s my interpretation (i.e. the views and opinions below are mine).

The Problem: On really hot days the power grid is taxed with all the ac units running. To keep up with demand the power company (PEPCO) has to keep excess capacity. This excess capacity is expensive and not used a lot of the time, so the power company would like to find a way to have fewer power plants.

Possible Solution 1: Turn off power to some people when PEPCO hits excess capacity sometimes called a rolling blackout. This type of measure is used in developing countries, but it hurts business. Imagine trying to buy something at just about any store in the US without power, in 95% plus my guess is it is not possible. Plus not having electricity is a pain for our modern lives, so it will anger consumers.

Possible Solution 2: Charge people more for power during peak times. This probably won’t work too well since people are generally price inelastic to energy cost (that is an increase in the cost of electricity does not change my electricity use too much).

Possible Solution 3 (Energy Wise): Now back to energy wise the program that started the post. The program will pay my wife and me a monthly credit ($16)* to turn off our air conditioner on days when the company really needs it. PEPCO will be able to
turn off our AC through remote control when they need the power.

This is really a case where behavioral economics will come into play. If solution 2 does not work and 3 solution 3 does I think this shows that people will respond differently to a $16 increase in their bill (probably not at all) and a $16 decrease (join the program thereby cutting their electricity use), even though economic theory would suggest there should not be a difference.

Of course there are also questions about losing control of your AC. Will allowing people to override the system and turn their AC back on twice during the year be enough? I’ll be curious to see how successful the program is at cutting energy use and saving on PowerPlant construction.

We have to check with our landlord, but we’re strongly thinking of participating.

*correction it was $16 a month not $10 a month as I had in an early draft.

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1 comment:

Britt said...

Anecdote: Back in college, my roommate and I were shopping at Econofoods on a Saturday morning when the power went out. This resulted in all the customers breaking for the check-out lanes, where, of course, the registers were inoperable. As we stood in a very long line, a manager walked up to us, eyeballed our cart, and said, "Thirty dollars sound alright to you?" Knowing that we had a heck of a lot more than $30 worth of merchandise, we enthusiastically agreed, forked over the dough, and skedaddled, lest the power come back on.