MICHEL MARTIN, HOST:
If you've stepped outside at all today, you already know this - it's really, really hot. Some 26 states in the Midwest and East Coast are under heat advisories, which means people are cranking up the AC if they have it.
But what if you had to pay more during a heat wave because everybody else is cranking the AC at the same time? When users are charged more when the product or service is in demand, it's called surge pricing. Uber users know about this. Arizona's largest utility wants to start using surge pricing with its electricity customers. Will Stone of station KJZZ in Phoenix reports.
JULIE POWELL: That's this warm weather.
WILL STONE, BYLINE: The air conditioner at Jim and Julie Powell's house has been fending off the 100-degree summertime heat for two decades, ever since they came to this retirement community of Sun City, just west of Phoenix.
POWELL: It's been a workhorse. It's probably 20 years old, but it does the job.
STONE: Julie peers at the old unit from the shade of her back porch. Like many here, they keep close tabs on their electric bill during this time of year.
POWELL: I'm a turn-the-fan-off, turn-the-light-off, turn-everything-off person.
STONE: But those energy-saving efforts may soon not be enough. Inside, Jim leafs through their summer bills from the power company, Arizona Public Service or APS.
JIM POWELL: One-eighty-three, 262, 250.
STONE: Steep, but predictable. Ever since he's heard about a new fee, he's begun to worry.
POWELL: With this demand charge, it could be out of the blue, every month something different.
STONE: Here's how that so-called demand charge would work. The power company will look at the one hour of the month during peak time when the couple uses the most energy. So Jim wonders what happens if they turn up the AC one evening while the oven and washer are running?
POWELL: All of a sudden we've spiked our kilowatt usage way up from what it normally is for a short period of time, but yet we're going to get stuck with a bill for that. And I don't think that's right.
STONE: While this kind of rate's been around for decades, mostly for commercial operations, APS would be the first utility in the country to mandate it for almost all residential customers. And the Powells aren't the only ones upset.
UNIDENTIFIED CROWD: (Chanting) Hey hey, ho ho, demand charges have got to go.
STONE: Within a week of the utility proposing the charge, protesters had taken to the streets with signs like surge pricing is unfair and profits over people.
STEFANIE LAYTON: It's not as complicated as some make it sound.
STONE: That's Stefanie Layton of APS.
LAYTON: Really, if you just stagger the use of your major appliances, that's an excellent way to manage your demand.
STONE: She says the charge gives customers another tool to actually save money, but acknowledges some will not.
LAYTON: It better aligns how much customers pay with the cost they impose on the system.
STONE: Most of a utility's costs are fixed - things like substations, transmission lines, power plants. All that infrastructure must be in place for when demand spikes. APS hopes to encourage customers to put less strain on the grid, especially during summer afternoons and evenings.
LAYTON: In order to send customers a signal that says our costs are driven by demand, if you can lower your demand, you can lower your costs.
JAMES SHERWOOD: There's still a lot of unknowns around this and whether demand charges send a price signal that is effective.
STONE: That's James Sherwood, who studies rate design at the Rocky Mountain Institute, speaking via Skype. Sherwood says there's a void of data about how residential customers respond to this kind of rate, but more utilities might use demand charges as they adjust to new technology.
SHERWOOD: Like rooftop solar and batteries and things like that, which are coming onto the market in a way that people can afford them and adopt them.
STONE: He says, also, energy use has shifted to more appliances later in the day, which drives up the utility's costs. About 10 percent of APS residential customers voluntarily use a demand charge, and the utility says most are saving money.
PAT QUINN: It's certainly good for the company.
STONE: Pat Quinn is one of those volunteers and isn't happy. He's a former consumer advocate for the state and says demand charges lead to unexpected swings in the monthly bill. In fact, last year, his charge varied month to month from $30 to 150.
QUINN: Think if you're somebody that's basically homebound. You need the air conditioner in the summer. You may not have an option to change the way you're actually living.
STONE: After all, rates aren't just about recovering costs. They also need to work for customers. Whether this kind of charge can do that will be the question facing regulators here and across the country. For NPR News, I'm Will Stone in Phoenix.
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