SGCC Peer Connect: Time-of-Use
Pricing
May 7, 2013
Today’s Presenters
David Eggart
Ahmad Faruqui, Ph. D.
Energy Select Program Manager
Principal
Gulf Power Company
The Brattle Group
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Agenda
1. SGCC entering the conversation
•
Consumer pricing fact sheet
2. Dynamic pricing case study
•
Energy Select program
•
Load shape analytics
3. Analyzing the current TOU climate
•
TOU now
•
Low income segments
•
U.S. & International future
4. Q&A Session
SGCC’s Pricing Fact Sheet
Speaker #1
Name
David Eggart
Background
Energy Select Program Manager and Team Leader – Gulf
Power Company
•
Been with Gulf Power Company since 1983.
•
Responsible for the development and implementation of this
Price Response Load Management Program.
•
Served extensively as both a field marketing
representative and front line supervisor.
•
Served as the Economic Evaluation and Marketing
Reporting Team Leader.
•
Experience in residential marketing and market research.
David Eggart – Gulf Power Company
Background
 Energy Select program initiated in 2000
 Largest CPP program in U.S.
 11,000+ customers
 Energy Select = TOU-CPP
 Automated Program
 Program Goal: Residential advanced energy
management system that delivers increased value
to customers while providing peak reduction benefits
to utility system.
 Key components
 Variable price rate
 Ability to pre-program devices to
automatically respond to variable prices
 “Set it and forget it”
Customer Focus
 Design the program where the
customer can win
 Design the program where if the
customer wins, the company wins
 Keep the message and the mission clear
Rate (RSVP)
Price Per kWh*
Standard Residential Rate 9.9 cents/kWh
LOW
MEDIUM
HIGH
CRITICAL
7.3 cents
8.5 cents
15.4 cents
59.4 cents
* All prices are as of 01/01/13, excluding any
applicable taxes. These prices are subject to
change.
Price per kWh
$0.50
Critical
59.4
$0.20
(Limited
To 87
$0.10
8.5
7.3
Low Medium
High Hrs/Yr)
15.4
Standard Residential Rate 10.1
cents
Customer Portals
Back office
Software
IntelliSOURCE
2-Way, Interactive
2-Way, AMI
AMI Headend
Internet
AMI Network
Feature Set
Provisioning
Metering
Pricing
Digi GW
ZigBee HAN
HAN Devices
Smart PCT
Load Control
Device
Feature Set
TOU/CPP
Programming
FW Update
Addressing
Metering
Analysis
Customer Web Portals
Benefits:
Customer
Increased customer satisfaction and engagement
Control energy based on price
Lower price of electricity 87% of the time.
Savings – Avg annual savings/home – 736 kWH
Utility
Reliable MWs at “push of a button”
Better use of existing generation
Load Reduction
Energy Select - Non Peak Summer Day
6
5
kW
4
Typical Summer Day
3
2
3,000,000
1
0
2,500,000
1
3
5
7
9
11
13
15
17
19
21
23
21
23
Time
2,000,000
1,500,000
Energy Select - Peak Summer Day
Critical Price 4:00 PM to 5:00 PM
1,000,000
500,000
6
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
5
Hours
kW
4
3
2
1
CP Reduction – 1.74 KW/home
0
1
3
5
7
9
11
13
Time
15
17
19
Load Reduction
Energy Select - Non Peak Winter Day
kW
Typical Winter Day
2,600,000
2,100,000
5
5
4
4
3
3
2
2
1
1
0
1
3
5
7
9
1,600,000
11
13
15
17
19
21
23
21
23
Time
1,100,000
Energy Select - Winter Peak Day
Critical Price 6:00 AM to 7:00 AM
600,000
100,000
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
kW
Hours
CP Reduction – 2.36 KW/home
5
5
4
4
3
3
2
2
1
1
0
1
3
5
7
9
11
13
Time
15
17
19
"It was one of the easiest things I've ever done". "I just set the
thermostat and let it save me money. The biggest change is that
it makes you more aware of your habits and usage of
electricity."
Energy Select Customer
Speaker #2
Name
Ahmad Faruqui,
Ph. D.
Background
Principal – The Brattle Group
•
Specializes in the analysis, design and evaluation of smart
grid strategies involving the consumer.
•
Designed and/or evaluated time-of-use and dynamic
pricing pilots in multiple states.
•
Author, co-author or editor of four books and more than
150 articles, papers and reports on efficient energy use.
•
Ph.D. in economics and an M.A. in agricultural economics
from The University of California at Davis.
•
B.A. and M.A. degrees in economics from The University of
Karachi.
CREATING THE FUTURE OF TIMEOF-USE PRICING
Ahmad.Faruqui@Brattle.Com
Copyright © 2012 The Brattle Group, Inc.
The views expressed in this letter are strictly those of the authors and do not necessarily state or reflect the views of The Brattle Group, Inc.
www.brattle.com
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Two views of the future
 The future, though imminent, is obscure.
Winston Churchill
 The best way to predict the future is to create
it.
Peter Drucker
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The Brattle Group
The present situation
 Even though American consumers routinely
encounter time-of-use pricing in daily life,
from parking a car to buying an airline ticket,
they do not encounter it when buying
electricity
 About one in four residential customers have
smart meters but only two in one hundred
are on a time-of-use rate
 One of the barriers is a perception that
customers won’t respond
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The Brattle Group
A history lesson – price elasticity is alive and
well in the world of electricity
60%
Price and Enabling Technologies
Price-Only
Peak Reduction
50%
40%
30%
20%
10%
0%
0
1
2
3
4
5
6
7
8
9 10 11 12 13 14 15 16 17 18 19 20 21
Peak to Off-Peak Price Ratio
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The Brattle Group
The Arc of Price Responsiveness allows
predictions to be made
 Peak to Off-Peak Price Ratio = 5
 Pricing-Only:
 Pricing + Tech:
~11.4% peak reduction
~20.7% peak reduction
 Peak to Off-Peak Price Ratio = 10
 Pricing-Only:
 Pricing + Tech:
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~14.7% peak reduction
~28.0% peak reduction
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The Brattle Group
Even low income customers respond
120%
Average customer response
100%
100%
Peak Reduction
84%
80%
100%
100%
85%
71%
66%
66%
60%
50%
40%
22%
20%
0%
California
PG&E
PG&E
CL&P's
Hydro
California
Pepco DC
SPP: CARE SmartRate SmartRate
PWEP
Quebec:
SPP: Low (price only):
vs. Average 2009: CARE 2008: CARE Program Low Income Income vs. Low Income
vs. Average vs. Average (PTP high): vs. Average Average vs. Average
Hardship vs. Residential
Residential
Average
BGE 2008:
CL&P's
Known Low
PWEP
Income vs. Program:
Known
Known Low
Average
Income vs.
Customer
Known
Average
Customer
Consumers
Energy: Low
Income vs.
Average
Residential
Note: For the PepcoDC pilot, the average residential response excludes
low income customers that qualify for the RAD program
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The Brattle Group
Indeed, 80% of low income customers may be
over-paying for electricity on flat rates
.
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The Brattle Group
An American tour of the future
Arizona
 Over two decades, Arizona Public Service has enrolled 51% of its customers
on a voluntary TOU rate and the Salt River Project has enrolled about 30%
of its customers on a voluntary TOU rate
 In both cases, the TOU rate appeals to large consumers who avoid the
upper tier of an inclining block rate by going with TOU
California
 PG&E has enrolled 80,000 customers on CPP
 SDG&E is offering PTR on an opt-out basis to nearly two million customers
 SCE is offering PTR on an opt-in basis to millions of customers
Illinois
 Both the investor-owned utilities, ComEd and Ameren, have enrolled about
25,000 customers on RTP in Illinois
 A new state law calls for opt-in PTR to be offered statewide
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The Brattle Group
An American tour (concluded)
Oklahoma
 OG&E has begun rolling out VPP and hopes to sign up 20% of its
customers over the next 2 years
 By so doing, it hopes to avoid building a medium-sized power plant
The Mid-Atlantic Region
 BGE and PHI will be offering PTR to 2 million customers over the next
few years in Delaware, Maryland and the District of Columbia
 PJM is allowing price-responsive demand to be bid into its multi-state
markets, as AMI and dynamic pricing are rolled out in its footprint of 51
million customers
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The Brattle Group
An international tour of the future
Canada (Ontario)
 3.9 million (81%) residential and small business customers are on TOU rates
under a regulated retail pricing plan (March 2012)
 All customers have the option of switching over to retail providers
China
 Beijing: 62% of the population was on TOU rates by the end of 2003
 Hebei: 40,000 customers (about half of all sales) are on TOU rates
Additionally, Hebei has instituted a mild CPP rate
 Jiangsu: Voluntary residential TOU since 2003
 Shanghai: TOU rate with a 4.5-to-1 peak to off-peak price ratio
France
 Électricité de France has offered residential customers CPP across France
through the tempo tariff since 1996
 About half a million customers have enrolled into the rate
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The Brattle Group
International tour (concluded)
Ireland
 The Commission for Energy Regulation is currently assessing the pros
and cons of mandating TOU tariffs
 Stakeholder engagement will follow in 2013
Italy
 Currently, 28.8 million customers are on a TOU program
 18.8 million are residential customers
 ~91% of these residential customers have defaulted to the TOU
tariff
United Kingdom
 Consumer Focus found ~75% of consumers on TOU tariff are
satisfied
 Most popular TOU tariff is the Economy 7 tariff
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The Brattle Group
Creating the Future
 Opt-in
 Makes sense but only if the dynamic pricing rate is net of the
hedging premium in flat rates and if dynamic pricing rates are
simple and easy for customers to understand
 The rates should offer customers significant savings potential and
also be offered in a way that appeals to other customer needs
besides just saving money.
 Opt-out
 Best to offer it with full bill protection for the first year and to
phase this out over the next two to three years
 An alternative is to offer two-part rates
 Another alternative is to offer peak-time rebates
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The Brattle Group
Opt-in
Opt-in participation rates tend to be quite low
 The rate is 1% in the US for time-varying rates and 1% of that
1% for dynamic pricing rates
However, if the hedging premium that is embedded in
flat rates is removed from the dynamic pricing rate,
making it less expensive than the flat rate, higher
participation rates can be expected
 The Arizona example cited earlier makes the point: TOU rates
have been selected by 51% of the customers for one utility
and by 29% for another
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The Brattle Group
Opt-out
If dynamic pricing is offered on an opt-out basis,
societal benefits will be maximized but several people
may see higher bills
 They could be allowed to opt-out
 Selective opting out by the most expensive to serve customers
could result in high rates for everybody
 Better to ensure adequate protections for all customers in the
first few years
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The Brattle Group
To manage the politics, the best option may
be to put forward a hybrid offering
 Mandatory for customers above a certain
size
 Optional for low income consumers
 Opt-out for everyone else
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The Brattle Group
Takeaways & Questions
Thank you!
You will receive a copy of the slides to the email
address you used to register.
David Eggart
Ahmad Faruqui, Ph. D.
Energy Select Program Manager
Principal
Gulf Power Company
The Brattle Group
wdeggart@southernco.com
Ahmad.Faruqui@brattle.com
Links to Resources:
• Gulf Power Energy Select Website:
• http://www.gulfpower.com/energyselect/
• The Brattle Group Economic and Financial Experts Website:
• http://www.brattle.com/
• SGCC’s Pricing Fact Sheet:
• http://smartgridcc.org/news-events/resource-release-sgccs-pricing-fact-sheet
Source documents
(Dynamic pricing bibliography available on request)
 Federal Energy Regulatory Commission staff. A National Assessment of Demand
Response Potential. June 2009. http://www.ferc.gov/legal/staff-reports/06-09-demandresponse.pdf
 Faruqui, Ahmad and Neil Lessem, Managing the Costs and Benefits of Dynamic Pricing,
Australian Energy Market Commission: Power of Choice Review, September 2012.
http://www.aemc.gov.au/market-reviews/open/power-of-choice-update-page.html
 Faruqui, Ahmad, Ryan Hledik and Jennifer Palmer, Time-Varying and Dynamic Rate
Design, Regulatory Assistance Project, July 2012. http://www.raponline.org/topic/globalpower-best-practice-series
 Faruqui, Ahmad and Doug Mitarotonda, “Energy Efficiency and Demand Response in
2020: A Survey of Expert Opinion,” The Brattle Group, November 2011.
http://www.brattle.com/_documents/UploadLibrary/Upload990.pdf
 Faruqui, Ahmad and Jenny Palmer, “The Discovery of Price Responsiveness – A Survey
of Experiments Involving Dynamic Pricing of Electricity,” EDI Quarterly, April 2012.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2020587
 Faruqui, Ahmad and Jenny Palmer, “Dynamic Pricing and its Discontents,” Regulation,
Fall 2011. http://www.cato.org/pubs/regulation/regv34n3/regv34n3-5.pdf
 Wood, Lisa and Ahmad Faruqui, “Dynamic Pricing and Low-Income Customers:
Correcting misconceptions about load-management programs,” Public Utilities
Fortnightly, November 2010, pp. 60-64.
http://www.fortnightly.com/archive/puf_archive_1110.cfm
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The Brattle Group
The Brattle Group Contacts
www.brattle.com
North America
Cambridge, MA
+1.617.864.7900
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+1.202.955.5050
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+1.415.217.1000
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+44.20.7406.7900
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+34.91.418.69.70
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+39.06.48.888.10
Europe
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