1. Critical Peak Pricing Gulf Power’s Experience Dan Merilatt, V.P. Marketing Services GoodCents Solutions, Inc. Stone Mountain, GA September 9, 2002

2. Our Critical Peak Pricing Paradigm Paradigm applies to Residential & Small Commercial Customers Paradigm consists of four interdependent elements: A time-varying rate design with a near real-time pricing component, An in-home, customer-programmed, automated energy management (AEM) system, A way to rapidly communicate rate changes, critical peak conditions, and other messages to program participants, and A means of recording and retrieving the requisite billing determinants.

3. Our Critical Peak Pricing Paradigm Why the paradigm requires all four elements. Prices should reflect the time-varying character of electricity supply cost. Implication: Some form of time-of-use rate – probably seasonally differentiated Critical real-time supply considerations should promptly be communicated to consumers and reflected in the price they pay. Demand will not otherwise be properly attenuated

4. Our Critical Peak Pricing Paradigm Why the paradigm requires all four elements. The “full cost” of responding to price changes is much more than the price difference. Customers must act in order to respond. These actions require time and effort. Lowering the incremental “cost” of responding should increase the amount of price response. An in-home, customer-programmed, automated energy management system lowers this “cost” that customers must bear.

5. Our Critical Peak Pricing Paradigm Why the paradigm requires all four elements. Rate changes and critical supply conditions must be communicated to consumers if we expect them or their systems to invoke the pre-selected responses. Customer’s energy consumption must be tracked and measured. The meter must know what price or rate is in force at all times so that it can accurately “bucket” the energy used. A near real-time pricing component implies that both the customer’s energy management system and the customer’s meter will need to know about it.

6. A Schematic of the CPP Paradigm – The WAN Gulf Power Company Telephone Line VHF Paging Signal Telephone Line Paging

7. A Schematic of the CPP Paradigm – The LAN Electric Water Heater An AEM Program- mable Thermostat Existing thermostat wires HVAC Equipment VHF Paging Signal Telephone Line Power Line Carrier Pool Pump

8. Testing the CPP Paradigm Georgia Power in the Mid-1980s Roswell, GA (a suburb of Atlanta) Gulf Power in the Early-1990s Gulf Breeze, FL (a “suburb” of Pensacola) All four interdependent elements of the CPP Paradigm were put into place. A two-year market research experiment was performed and documented. The results persuaded Gulf Power to move forward and offer the program to residential customers as an option to their standard residential service.

9. Gulf Power’s Experimental Findings Gulf Power Tested the Value of the CPP Paradigm Two Plus Year Experiment (1991 - 1994) TranstexT Home Energy Management System Customers programmed their HVAC, Water Heaters, & Pool Pumps to operate differently at different times and under different pricing conditions. Gulf Power’s AEM Rate consisted of 4 hourly prices; Low, Medium, High and Critical Timing varied by season, day-type, and hour of day

10. Gulf Power’s Three Research Questions Could AEM reduce the need for generation? Would AEM enable the existing fleet to be better used? Would AEM provide customers with value?

11. Gulf’s Research Results AEM will reduce the need for generation. Summer Peak Load Reduction per House at Critical 2.16 kW (-42.2%) in 1993 1.94 kW (-37.0%) in 1992 Winter Peak Load Reduction per House at Critical 2.97 kW (-61.5%) in 1993 2.48 kW (-49.0%) in 1992

12. Gulf’s Research Results AEM will make better use of the fleet.

13. Gulf’s Research Results AEM will provide customers with value. Greater Control Better Information Bill Savings “A significantly higher percentage of the test group customers were very satisfied...” Value of Saved Energy (1,433 kWh) = $100 Rate Savings due to Timing of Consumption = $87 Total Annual Savings = $187 Average Annual Bill w/o AEM = $1254 Average Annual Bill with AEM = $1067 Percentage Bill Savings = 14.9%

14. Gulf’s Research Results AEM provides other benefits too. Customer Choice Not Utility Control Enhances Customer Satisfaction Reduces Policing Requirements vs. Direct Load Control Produces Reliable Peak Demand Reductions Requires No Utility Paid Incentive Customers Save by Acting and Reacting Customers Unwilling to Change Will Not Participate AEM is Equitable Heaviest Electricity Users are the Target Market Capacity Savings Benefit All Users Customers Prefer AEM Focus Groups Results Prove

15. Gulf’s Research Results Supplemental Material

16. Results by Stratum – Demand Reductions

17. Results by Stratum – Energy Responses