Lightbulbs
Jakob Puckett

Missouri’s electricity market does not include many free-market principles. Incorporating them has the potential to save customers money.

Electricity prices change as demand fluctuates throughout the day, but customers who pay fixed, per-kilowatt hour rates are shielded from those changes. This price shielding also means consumers don’t benefit from cost-conscious electricity use.

Many Missourians do have access to time of use rates through their utility, which do reflect market principles to a limited degree. Two or three different rates for electricity use are set based on demand at certain times of day. For instance, customers pay a higher set rate between 10 a.m. and 8 p.m. (since demand is higher) than they do during all other hours, yielding some benefits for cost-conscious consumers.

But since electricity prices change by the hour, could this time-sensitive pricing principle be extended further to yield even more consumer benefits? How would that work?

Utilities in many states offer customers “real-time pricing,” which grants residents the ability to pay market rates for electricity that change hourly based on demand. Transparent real-time prices allow customers to plan their electricity use and save money accordingly. For example, real-time pricing customers of ComEd, Illinois’ largest utility, saved an average of 15 percent on electricity supply charges between 2015 and 2018 compared to what they would have paid under a fixed-rate plan. Ameren Illinois’ real-time pricing customers also saved 10 percent during that same period.

Logistically, utilities offer websites publishing day-ahead hourly electricity prices for their customers, who are equipped with an advanced meter to measure their hourly electricity use. No cost estimates for implementing a real-time pricing program in Missouri exist, but the only equipment needed is a low-cost meter upgrade. Enrollees in Ameren Missouri’s time-of-use program pay a $1.50 fee per month to use an advanced meter. If this is any guide, costs incurred should be low and only charged to customers applying to the program.

Ultimately, while Missourians have access to a watered-down version of real-time pricing, introducing more market-based principles into electricity markets has the potential to bring more consumers benefits.

 

About the Author

Jakob Puckett
Jakob Puckett
Analyst

Jakob Puckett received his M.S. in Economics from University of Illinois in 2019.