Can Residential Customers Respond to Dynamic Pricing? NANCY BROCKWAY Multi-Utility Sector Chief National Regulatory Research Institute A presentation to the Kansas Corporation Commission Workshop on Energy Efficiency Topeka, Kansas March 25, 2008

Nancy Brockway, NRRI March What Ill cover Residential customer responses Residential customer responses Load reductions - Percents or Elasticities Load reductions - Percents or Elasticities Broken down by socioeconomic variables Broken down by socioeconomic variables Low use Low use Low income Low income Presence of Central Air, Smart Thermostats, etc. Presence of Central Air, Smart Thermostats, etc. Results of major pilots of dynamic pricing Results of major pilots of dynamic pricing California Special Pricing PilotCalifornia Special Pricing Pilot Energy Smart Pilot ProgramEnergy Smart Pilot Program Ontario Smart Pricing PilotOntario Smart Pricing Pilot See NRRI AMI Paper reading list for results of other pilotsSee NRRI AMI Paper reading list for results of other pilots

Nancy Brockway, NRRI March What I wont cover Bill impacts – At least not in detail, nor definitively Bill impacts – At least not in detail, nor definitively Costs of implementing dynamic pricing Costs of implementing dynamic pricing System savings achieved by reducing peak demands System savings achieved by reducing peak demands Alternative approaches to reducing peaks, Alternative approaches to reducing peaks, And their costs.And their costs. These are important questions, These are important questions, on which a lot has been written.on which a lot has been written. See reading list Appendix to NRRI Report 08-03See reading list Appendix to NRRI Report

Nancy Brockway, NRRI March Overview of Presentation Describe pricing options considered Describe pricing options considered Summarize arguments pro and con Summarize arguments pro and con For each pilot For each pilot Describe pilot design briefly, and Describe pilot design briefly, and Discuss average results for different pricing options Discuss average results for different pricing options Discuss results for low use and low-income Discuss results for low use and low-income Discuss some methodological issues Discuss some methodological issues Conclusions Conclusions

Nancy Brockway, NRRI March Pricing Types Defined Static – Set in advance; don't change w/ changing system costs Static – Set in advance; don't change w/ changing system costs Flat $/kWh Flat $/kWh Time of Use (TOU) – Seasonal/Diurnal/other Time of Use (TOU) – Seasonal/Diurnal/other Dynamic – Change to match actual system costs Dynamic – Change to match actual system costs Real Time Pricing (RTP) Real Time Pricing (RTP) Prices updated at least daily, typically on an hourly basis Prices updated at least daily, typically on an hourly basis Pacific NW – pilot interactive pricing Pacific NW – pilot interactive pricing Critical Peak Pricing (CPP) or Critical Peak Rebates Critical Peak Pricing (CPP) or Critical Peak Rebates Very high prices for 2-5 hours, hrs/year Very high prices for 2-5 hours, hrs/year Days with highest system peak highest system cost Days with highest system peak highest system cost Day-ahead or hours-ahead notification of customer Day-ahead or hours-ahead notification of customer

Nancy Brockway, NRRI March Chart of CPP/TOU/Flat Rate Prices on a Critical Peak Day Cents/kWh Hours

Nancy Brockway, NRRI March Just say no Benefits don't justify costs: Benefits don't justify costs: Most residentials cannot save Most residentials cannot save Cannot shift load to off-peak hours Cannot shift load to off-peak hours Cost of metering will eat up savings Cost of metering will eat up savings Big problem for low-use and low-income customers Big problem for low-use and low-income customers These customers will suffer These customers will suffer Those residentials who can save, won't Those residentials who can save, won't Have enough money to pay the peak prices Have enough money to pay the peak prices Will just buy through, so no system benefit Will just buy through, so no system benefit Effects will not persist, but costs will Effects will not persist, but costs will

Nancy Brockway, NRRI March Just say Yes Benefits claimed: Benefits claimed: Reduce peaks/ Reduce need for expensive, risky new capacityReduce peaks/ Reduce need for expensive, risky new capacity Align customer rates with cost-causationAlign customer rates with cost-causation Gives customers control over their usage and billsGives customers control over their usage and bills Spurs efficiency behavior, and thus lowers emissionsSpurs efficiency behavior, and thus lowers emissions Drawbacks addressed: Drawbacks addressed: Small and low-income customers can and will switchSmall and low-income customers can and will switch Bills will be reduced, not increasedBills will be reduced, not increased System costs will go down System costs will go down Low use have better load profile Low use have better load profile Rate design can help mitigate impact of new metering costs Rate design can help mitigate impact of new metering costs Can address specific adverse impactsCan address specific adverse impacts Make it voluntary (opt in or opt out)Make it voluntary (opt in or opt out)

Nancy Brockway, NRRI March Let's look at the facts Three recent pilots with controls/evaluations Three recent pilots with controls/evaluations California Special Pricing Pilot California Special Pricing Pilot Energy Smart tm Pricing Pilot – Chicago Energy Smart tm Pricing Pilot – Chicago Ontario Energy Board Smart Price Pilot Ontario Energy Board Smart Price Pilot

Nancy Brockway, NRRI March California Special Pricing Project July 2003 – September 2004 July 2003 – September 2004 All participants given interval meters All participants given interval meters 3 pricing approaches - TOU, 2 CPP groups 3 pricing approaches - TOU, 2 CPP groups TOU – off peak, shoulder, on-peak TOU – off peak, shoulder, on-peak Critical peak pricing: Critical peak pricing: 12 summer and 3 winter Critical Peak events (+/- 75 hrs) 12 summer and 3 winter Critical Peak events (+/- 75 hrs) $/kWh averaged 3X normal on-peak, 6X off-peak $/kWh averaged 3X normal on-peak, 6X off-peak Low-Income Low-Income w/ and w/out c ommunity energy education w/ and w/out c ommunity energy education Urban residents – MF, little A/C Urban residents – MF, little A/C

Nancy Brockway, NRRI March CA SPP: 2 CPP Groups, Fixed Notice and Variable Notice No PCT CPP-F No PCT CPP-F 5 hour CPP events 5 hour CPP events Day ahead notice of CPP event Day ahead notice of CPP event PCT CPP-V PCT CPP-V 5-hour CPP events and 2-hour CP events. 5-hour CPP events and 2-hour CP events. Day of (4 hour) notice of CP event Day of (4 hour) notice of CP event And PCTs signaled at beginning of CP event And PCTs signaled at beginning of CP event All = All = SFH with central A/C, and SFH with central A/C, and Use > 600 kWh/mo. Use > 600 kWh/mo. PCT = Programmable Communicating Thermostat

Nancy Brockway, NRRI March CA SPP Ave. CP response of CPP-F, by bundled temp. bands * Source: Herter, et al, Table 2

Nancy Brockway, NRRI March CA SPP Ave. CP response of CPP-V by temperature bands Source: Herter, et al., Table 2

Nancy Brockway, NRRI March Energy Smart TM Pricing Pilot Chicago, Illinois area, Chicago, Illinois area, Community Energy Cooperative + ComEdCommunity Energy Cooperative + ComEd Residential customersResidential customers Coop members invited; by 3 rd year, 1400 joinedCoop members invited; by 3 rd year, 1400 joined Hourly Day-ahead RTP, with High Price NotificationHourly Day-ahead RTP, with High Price Notification Advance notice of next day pricesAdvance notice of next day prices Some days = high price days (> 10¢/kWh energy) special noticeSome days = high price days (> 10¢/kWh energy) special notice Interval meters installedInterval meters installed 2 pricing groups: RTP and RTP w/ DLC2 pricing groups: RTP and RTP w/ DLC Relatively low-techRelatively low-tech Smart Thermostats offeredSmart Thermostats offered 57 participants fitted with DLC on A/C from yr 2 57 participants fitted with DLC on A/C from yr 2 Phone, , fax notice of upcoming critical peakPhone, , fax notice of upcoming critical peak

Nancy Brockway, NRRI March ESPP Results: Weather & PCTs Make a Difference 2003 (cool summer) 2003 (cool summer) Price elasticity = 4.2 on averagePrice elasticity = 4.2 on average Responses decayed over time, but were recharged with timeResponses decayed over time, but were recharged with time 2004 (cool summer): 2004 (cool summer): Price elasticity = 8 on average over all hoursPrice elasticity = 8 on average over all hours But on average, no significant response to high price daysBut on average, no significant response to high price days On average, increased load 8% late on one high price day On average, increased load 8% late on one high price day A/C w/DLC – reduced as much as 9% & 11%A/C w/DLC – reduced as much as 9% & 11% 2005 (very hot summer): 2005 (very hot summer): Price elasticity = 4.7 on averagePrice elasticity = 4.7 on average Big response to high price days Big response to high price days PCT with DLC increased price elasticity about 1/3 (to 6.9) PCT with DLC increased price elasticity about 1/3 (to 6.9)

Nancy Brockway, NRRI March Ontario Smart Pricing Pilot Ottawa, August February 2007 Ottawa, August February Pricing Groups and a Control3 Pricing Groups and a Control TOU – from 3.5 cents off-peak to 10.5 cents on peak TOU – from 3.5 cents off-peak to 10.5 cents on peak CPP – 30 cents on CPP (w/ lower off-peak price) CPP – 30 cents on CPP (w/ lower off-peak price) CPR – 30 cent rebate for below-baseline CPP usage CPR – 30 cent rebate for below-baseline CPP usage Up to $75 incentive payment if reduce load during pilot Up to $75 incentive payment if reduce load during pilot Those with interval meters invited to join.Those with interval meters invited to join. Participants disproportionately:Participants disproportionately: SFH SFH Newer housing Newer housing Central air Central air More education More education Higher income Higher income

Nancy Brockway, NRRI March OSPP load responses by rate and time of use Summer Critical Peak Hours Summer, All Peak Hours CPP -25.4%-11.9%* CPR -17.5%-8.5% *N ote – During summer non-CPP peaks, CPP participants increased load 10.8%

Nancy Brockway, NRRI March CA SPP Impact of Usage on CPP Responses Low-Use households Low-Use households f (methodology) f (methodology) Per HerterPer Herter No statistically significant response to CPPNo statistically significant response to CPP regardless of income levelregardless of income level Per CRA analysisPer CRA analysis low-use hhlds CPP 9% - 12%, on averagelow-use hhlds CPP 9% - 12%, on average High-Use households High-Use households Yes, statistically significant responses to CPP Yes, statistically significant responses to CPP No statistical differences between income groupsNo statistical differences between income groups Per Herter analysisPer Herter analysis

Nancy Brockway, NRRI March CA SPP: CPP-F % Ave. Reduction in Peak Usage by Usage Level and End-Use * *Source: CRA, SPP Evaluation, Summer 2003, Table 5-9; CRA, Final Report, Table 4-19

Nancy Brockway, NRRI March ESPP Elasticities by housing type, space conditioning devices

Nancy Brockway, NRRI March CA SPP Low Income load response Source: M.Cubed and Charles River Associates, Statewide Pricing Pilot Track B: Evaluation of Community-Based Enhancement Treatment. Lower income participants reduced less: Lower income participants reduced less: On average, Track B load response = 2.6% On average, Track B load response = 2.6% But a small # of participants pushed up the ave. responseBut a small # of participants pushed up the ave. response Statewide, <$40K groups reduced critical peak use by 10.9%* Statewide, <$40K groups reduced critical peak use by 10.9%* CARE – reduced critical peak use by 2.9%* CARE – reduced critical peak use by 2.9%* Bill savings before adding incremental metering costs. Bill savings before adding incremental metering costs. For lowest-income/low-use group = 2.7% reductionFor lowest-income/low-use group = 2.7% reduction for lowest-income/high-use groups = zerofor lowest-income/high-use groups = zero * Per Brattle Group analysis

Nancy Brockway, NRRI March CA SPP vs. ESPP The more the people in the hhld, the less the response The more the people in the hhld, the less the response SFH hhlds with CAC had the strongest % response SFH hhlds with CAC had the strongest % response Hhlds w/highest incomes had strongest responses to CP events. Hhlds w/highest incomes had strongest responses to CP events. The more the people at home, the more the response The more the people at home, the more the response MF households w/out A/C had the strongest % response MF households w/out A/C had the strongest % response Lower income hhlds had stronger response to high price days Lower income hhlds had stronger response to high price days

Nancy Brockway, NRRI March OSPP Bill Impacts Not counting incremental metering costs CPP CPP 83% paid lower bills Average savings = 4.2% Greatest loss = 13.8%, Greatest savings = 7.6% CPR CPR 73% paid lower bills Average savings = 4.2% Greatest loss = 9.1%, Greatest savings = 10.7% Overall (including TOU) Overall (including TOU) 75% of participants saved $, but In August, CPP participants saw higher bills In January, CPP participants saw higher bills

Nancy Brockway, NRRI March Source – Herter, Figure 5 CA SPP - Mean Annual % Change in Bills by Usage and Income (Without AMI Costs) Source – Herter, Figure 5

Nancy Brockway, NRRI March Participation Rate Problem Proponents claims: Proponents claims: 20% take TOU/CPP if opt-in 20% take TOU/CPP if opt-in 80% take if opt-out 80% take if opt-out But where is data? But where is data? SPP – opt in – 10% by end of pilot SPP – opt in – 10% by end of pilot Washington State – 90% opt in BUT Washington State – 90% opt in BUT Entire program eliminated after public outcryEntire program eliminated after public outcry Self-selection bias important on this issue Self-selection bias important on this issue

Nancy Brockway, NRRI March Better Persistence Today? Peaks can be more narrowly definedPeaks can be more narrowly defined High prices can be limited to 80 – 100 hoursHigh prices can be limited to 80 – 100 hours PCTs can automate responsePCTs can automate response Off-peak, non-critical peak prices are reducedOff-peak, non-critical peak prices are reduced Cost of hedging for flat pricing effects can be eliminatedCost of hedging for flat pricing effects can be eliminated Renewed public interest in lowering energy costsRenewed public interest in lowering energy costs

Nancy Brockway, NRRI March Conclusions Many residential customers can & do respond to CP/RTP pricing. Many residential customers can & do respond to CP/RTP pricing. Benefits system greatly, by avoiding new capacityBenefits system greatly, by avoiding new capacity CP Rebates can be attractive optionCP Rebates can be attractive option Can be done without full AMI, where AMI not cost-effectiveCan be done without full AMI, where AMI not cost-effective But jury is still out on But jury is still out on Steady-state participation ratesSteady-state participation rates PersistencePersistence Bill impactsBill impacts Low-use customers can benefit from CPP --- better load profile Low-use customers can benefit from CPP --- better load profile Even if they dont reduce loadEven if they dont reduce load Many did reduce load in pilotsMany did reduce load in pilots High-use/Low-Income customers are at risk High-use/Low-Income customers are at risk Need to identify, and direct bill and DSM assistance hereNeed to identify, and direct bill and DSM assistance here PCTs produce dramatic results PCTs produce dramatic results

Nancy Brockway, NRRI March For more information Nancy Brockway Chief, Multi-Utility Section NRRI 10 Allen Street Boston, MA