Despite Hot Summer, Electricity Consumption Unexpectedly Cools

Only a month into summer, the season already has roasted parts of the U.S. with record heat and humidity. You might think that would mean record electricity usage, as well, in the season that's traditionally been the most power hungry of the year.

But even though many people are cranking up their air conditioners to stay cool, overall electricity usage is down so far this summer compared to last year, according to the North American Electric Reliability Corp. (NERC), which sets regulatory policies for grid management.

The reason? The sluggish economy. "Every industry is more energy efficient than they were 10, 15 years ago," says Marc Yacker, a vice president with the Electric Consumers Resource Council, a trade group representing large energy users, in an interview.

The lower demand this summer could be bad news for power generators. Fitch Ratings expects that abundant supplies of natural gas will keep wholesale electricity prices low through 2012 and the U.S. Energy Information Administration estimates that retail prices will rise by only 0.8 percent in 2010, their lowest gain since 2000.

One of the most notable changes has to do with "peak demand" levels, or the amount of power needed when electricity use is at its highest. NERC projects that this summer's North American peak demand will fall 2.2% from 2009 levels and 3.9% from 2008 levels. Reserve margins, or the excess capacity above what's needed to meet normal peak demand levels, also are rising as peak demand falls.

Demand Response Down

This lower peak usage comes in spite of lower activity from so-called "demand-response" programs, which give large energy users discounted rates in exchange for voluntarily reducing their electricity consumption during periods of high demand. Demand-response companies sell utilities "negawatts," or megawatts of reduced usage, upon request. Participation in these programs has dropped for the first time in four years, NERC says.

The potential for demand response has "not been fully realized," Yacker says. This summer, demand response has only been used a handful of times across the country, less often than it's been used in the past when the weather was milder. One example was on July 6, when New York's grid operator asked large electricity users to cut back on roughly 400 megawatts of power consumption. But overall, lower peak demand has also reduced the need for demand response.

The Federal Energy Regulatory Commission last month released the National Action Plan on Demand Response, which advocated bigger incentives for power users to reduce their consumption at peak times. These programs are more economical than building new power plants, helping to reduce bottlenecks and keep peak prices during peak demand times from skyrocketing.

Another potential peak-shifting solution is time-of-use pricing, in which customers pay more for electricity during times of peak demand and less when electricity is in surplus. This type of pricing requires smart meters, which track when customers are using electricity and encourage them to shift their usage to off-peak hours. These devices are rolling out across the country, but as my colleague Alex Salkever recently reported, some California consumers object to smart meters because of concerns about electromagnetic radiation and privacy, among other things.