The Chicago Community Energy Cooperative (founded in 2000), in association with ComEd, developed the first significant effort to introduce hourly market-based electricity pricing to residential customers. The four-year pilot Energy-Smart Pricing Plan demonstrated the potential benefits of real-time electricity pricing on a limited basis. It was the first residential, market-based, hourly electricity program in the United States. As a result of its success, this program paved the way for expanding real-time pricing to all household across the state of Illinois, starting in 2007. The goal of the pilot project was to allow both participating customers, and the market as a whole, to capture the benefits of having retail prices of electricity reflect the costs of providing that power to customers, encouraging more-efficient energy consumption, reducing stress on the electric grid, and lowering peak demand for electricity. The pilot project (and expanded access to real-time pricing as of 2007) addressed some of the central issues associated with providing residential customers with electric price signals that reflect the changing costs of providing electricity. While the hourly costs of electricity in wholesale markets can vary dramatically, retail pricing, particularly for residential and small commercial customers, has largely remained subject to regulated tariffs. These tariffs typically have provided customers with fixed rates, i.e., they pay the same price for electricity regardless of when and how much is used. This fixed rate does not reflect the true cost to the economy of consuming electricity at a given point in time, and therefore it distorts key market decisions. As long as consumers have flat rates, there is little incentive to manage what is scarce. With real-time pricing, residential customers still receive a monthly bill that represents an average of electricity costs across that month. However, these customers are now afforded an opportunity to manage their bills and reduce their energy costs by shifting some of their energy use high price periods to lower price periods.The Community Energy Cooperative's (Cooperative) Energy-Smart Pricing Plan (ESPP) was started in January 2003. It provides customers with electricity prices that accurately reflect the hourly market price of electricity, and gives them the opportunity to make informed decisions about electricity use based on these prices. A regression-based model was developed to estimate the electricity consumption of each participant. The results show that participants consumed 35.2 kWh less per month during the summer months under ESPP relative to what their usage was estimated to be had they not received hourly electricity prices. This represents a savings of 3-4% of summer (June through August) electricity usage. (During the winter months, there was no statistically significant difference in monthly energy use between ESPP participants and individuals not facing hourly electricity prices.) Therefore, ESPP results in a net decrease in monthly energy consumption. In addition, ComEd customers under the pilot version of the program saved an average of 10% on their electricity bills, compared to what they would have paid on the standard rate.

Electricity prices rise when demands on the electrical production and distribution system are high. By managing their energy use during peak hours, participants not only save money, they also help relieve pressure on the system at times when demand is the greatest. At these times, even a small reduction in demand can go a long way toward maintaining reliability. Lower electricity consumption at peak demand periods can also reduce the use of fossil fuels for power generation; it can also help to reduce or eliminate the need for new electric capacity to meet peak demand.

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When consumers use energy wisely, they help protect the environment by reducing the need for new power plants and power lines. Further, the benefits of using energy more efficiently and reducing consumption are clear when you consider that, in the United States, power generation produces 67 percent of sulfur dioxide emissions that contribute to acid rain, 25 percent of nitrogen oxide emissions that contribute to urban smog, and 40 percent of the carbon emissions that contribute to global climate change. The ESPP program has demonstrated that residential customers can and do respond to hourly prices, and can serve as an example for the development of similar programs elsewhere in North American and around the world. It has already spread a small, local pilot program to a state-wide program in Illinois, and has reported influenced a similar intiative in San Francisco, California.

ESPP participants have demonstrated that, when given the tools to make informed decisions, consumers can and do change their electricity use and conserve energy during high demand periods. The Community Energy Cooperative is working hard to bring this message to local leaders and advocate for energy policies that, like ESPP, give citizens the power to control their energy costs, maintain reliability, and protect the environment. Participants pay hourly, market-based prices for electricity and can manage their costs by adjusting their electricity use in response to changing prices. Please see above for more information about impacts on society, the economy and environment.

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This can become a significant option for reducing both energy bills and energy consumption, particularly in major urban areas, benefiting electricity consumers as well as producers. The pilot project was initially available for only a limited number of customers in Chicago, but is now available across the state of Illinois. It has sparked a similar initiative in San Francisco, California, and could be an option for reducing electricity demand - and thereby reducing the need for new electric capacity, use of fossil fuels, and the associated environmental impacts - for on-grid electricity use around the world. In addition, by encouraging electricity conservation and improvements in efficiency, such programs can also make it easier for renewable energy to more easily and rapidly achieve a larger share of the electricity market.