Linking the Wholesale and Retail
Markets through Dynamic Retail
Pricing
Presented by:
Henry Yoshimura
Manager, Demand Response
ISO New England
September 30, 2005
Advantages of Linking Retail and
Wholesale Markets
• Retail and wholesale markets are Disconnected
• Linking retail and wholesale markets would encourage
naturally occurring Price Responsive Demand
• Price Responsive Demand helps lowers short-term
and long-term wholesale prices for all Vermont
customers
– Over $215 million per year in estimated cost
savings from 1,000 MW of Price Responsive
Demand in New England
• Price Responsive Demand reduces the potential for
Suppliers to exercise Market Power
Integrating Demand Response into the
Wholesale and Retail Markets
© 2005 ISO New England Inc.
Current Retail Market Conditions
• Few retail customers are exposed to wholesale
price volatility
• Few retail customers are motivated to reduce
load at times of high wholesale prices
• Why? Retail Rates and Wholesale Prices are
disconnected in real-time!
• Few customers have or are motivated to install
the technology to automatically respond to
changing prices
Integrating Demand Response into the
Wholesale and Retail Markets
© 2005 ISO New England Inc.
Achieving the Goal
• Give retail customers the option of reducing load
at times of high wholesale prices in exchange for
lowering their electricity bill
• Dynamic Retail Pricing is the best way to
encourage Price Responsive Demand
• Dynamic Retail Pricing coupled with Controls
Technology makes it easy for customers to
save money
Integrating Demand Response into the
Wholesale and Retail Markets
© 2005 ISO New England Inc.
What is Dynamic Retail Pricing?
California Statewide Pricing Pilot (SPP)
80
Cents per kWh
70
73.4¢
Time-of-Use
Critical Peak Pricing
60
50
Existing Rates
Avg. Summer Price
13.4 ¢/kWh
40
30
26.0¢
23.4¢
20
10
10.3¢
1,500
hrs/yr
7,260 hrs/yr
Peak
Off-Peak
8.9¢
75
hrs/yr
1,425
hrs/yr
7,260 hrs/yr
Critical
Peak
Peak
Off-Peak
0
Peak = 2:00-7:00pm weekdays; Off-Peak = all other hours
Critical Peak is dispatched from 2:00 to 7:00, 15 days per year
Integrating Demand Response into the
Wholesale and Retail Markets
© 2005 ISO New England Inc.
What’s in it for the Customer?
• Positive results from California Statewide Pricing
Pilot (SPP) in terms of:
– Bill Impacts
• 71.1 to 80.3 percent of participants reduced their
electricity bill
– Customer Satisfaction
• Almost 90% of participants felt that the new rate
design should “definitely” or “probably” be offered
to other residential customers
Integrating Demand Response into the
Wholesale and Retail Markets
© 2005 ISO New England Inc.
Key Findings from Recent Studies
• All customer classes have the potential to
participate in and benefit from Dynamic
Pricing
• The initial focus for implementing Dynamic
Pricing policies should be on larger
commercial and industrial customers
– The majority already have the required
technology (I.e., interval metering and
control equipment), are better informed,
and are in a better position to manage
varying prices.
Integrating Demand Response into the
Wholesale and Retail Markets
© 2005 ISO New England Inc.
Key Findings from Recent Studies (Continued)
• Dynamic Pricing that is closely linked to the
hourly changes in wholesale prices is more
effective than traditional Time-of-Use Rates
that are linked to average prices
• Demand Response Programs that do not
provide customers with price signals are not
as effective as Dynamic Pricing, nor is the
demand response behavior sustainable.
Integrating Demand Response into the
Wholesale and Retail Markets
© 2005 ISO New England Inc.
Key Findings from Recent Studies (Continued)
• Successful adoption and implementation of
Dynamic Pricing requires:
– Customer Education
– Regulatory Support
– Aligning the interests of the Retail Customers,
Local Utilities and Competitive Suppliers.
Integrating Demand Response into the
Wholesale and Retail Markets
© 2005 ISO New England Inc.
Key Findings from Recent Studies (Continued)
• The regulatory process to implement Dynamic
Pricing should include technical conferences
and public hearings to solicit input from:
– Retail Customers,
– Local Utilities,
– Competitive Suppliers,
– Technology Vendors, and
– Other Interested Parties
• The regulatory process should encourage joint
proposals and negotiation among the
stakeholders.
Integrating Demand Response into the
Wholesale and Retail Markets
© 2005 ISO New England Inc.
Dynamic Retail Pricing Links
•
Real Time Pricing as a Default or Optional Service for Commercial and
Industrial Customers (California Energy Commission and the Demand
Response Research Center)
– http://drrc.lbl.gov/drrc-pubs2.html
•
A Survey of Utility Experience with Real Time Pricing (LBNL and
Neenan Associates)
– http://eetd.lbl.gov/ea/EMS/EMS_pubs.html
•
California Statewide Pricing Pilot
– www.energy.ca.gov/demandresponse
•
PSERC Research
– http://www.pserc.org
– http://www.pserc.org/ecow/get/generalinf/presentati/psercsemin1/1psercse
min/schuler_seminar_nov2004.pdf
•
Niagara Mohawk Real-Time Pricing
– http://drrc.lbl.gov/drrc-pubs2.html
– http://drrc.lbl.gov
– http://eetd.lbl.gov/EA/EMP/reports/54974.pdf
Integrating Demand Response into the
Wholesale and Retail Markets
© 2005 ISO New England Inc.
Dynamic Retail Pricing vs. Demand
Response Programs
• Benefits of Dynamic Retail Pricing
– No transfer payments, subsidies and other out-ofmarket payments
– No “middleman” between Retail Customers and their
Supplier
– No double payment problem
– No customer baseline, program triggering and other
program inefficiencies
– Rate Design will result in Long-Term Investment in
Enabling Technology
Integrating Demand Response into the
Wholesale and Retail Markets
© 2005 ISO New England Inc.
What’s needed to Link the Wholesale and
Retail Markets?
•
•
•
•
•
•
Dynamic Rate Design Policy
Advanced Hourly Metering
Flexible Billing Systems
Customer Education
Controls Technology
State and Federal Support of Demand
Response
Integrating Demand Response into the
Wholesale and Retail Markets
© 2005 ISO New England Inc.
Energy Policy Act of 2005
• Advanced Metering and Time-Based Rates
– State regulatory agencies must conduct an
investigation and issue a decision whether it is
appropriate to implement the standards regarding
Time-Based Rates and Advanced Metering set out in
the Act
• Challenge
– May be difficult for individual States and utilities to
evaluate the impacts of Time-Based Rates and
Advanced Metering on Wholesale Market Prices and
Reliability
Integrating Demand Response into the
Wholesale and Retail Markets
© 2005 ISO New England Inc.
Contact Information:
Henry Yoshimura
(413) 540-4460
hyoshimura@iso-ne.com