March 25, 2004 California’s Statewide Pricing Pilot Larsh Johnson – President and Chief Technical Officer, eMeter

2 © eMeter Corporation 2004 California Statewide Pricing Pilot – Background California joint agencies demand response proceeding –PUC, Energy Commission, and Power Authority –Rulemaking , begun June 2002 –Establishing state policies for advanced metering and demand response Goal: avoid a repeat of the 2001 Energy Crisis Source: Mike Messenger, California Energy Commission Projected Reserve Margins Rolling Blackouts

3 © eMeter Corporation 2004 Status of Proceeding State Vision Adopted in 2003 (D ) Utilities to meet 5% of system peak demand via dynamic pricing by 2007 All customers should be provided advanced metering system capable of supporting a time-of-use (TOU) tariff or better Customers should have at least the following tariff options: –Over 200 kW: hourly real-time pricing (RTP), critical peak pricing (CPP) or TOU –Under 200 kW (residential and small commercial): CPP, TOU, or flat rate with hedge for risk protection Major Activities Advanced metering and CPP/TOU tariffs in place for >200 kW customers CPUC determining business case methodology for metering for <200 kW customers now and will issue deployment decision in about a year Utilities file March 31, 2004 on plans to meet 2007 goal Statewide Pilot Program

4 © eMeter Corporation 2004 Goals of Dynamic Pricing WHY: Dynamic pricing results in four major benefits to electricity consumers Lower power costs through avoided peaker plant, transmission, and distribution capacity spending –UC Energy Institute estimates that Californians would save up to $578 million/yr Higher reliability: better, more flexible response to supply or transmission shortages –California PUC has established a goal of meeting 5% of system peak demand via dynamic pricing by 2007 Improved cost allocation, since low on-peak usage customers currently subsidize the higher on-peak usage of other energy users Reduced air pollution emissions from reduced usage on hot summer “critical peak” afternoons, as well as reduced overall energy usage –Puget Sound Energy estimated 1% conservation effect from dynamic pricing in presentation to California PUC September 2002 Low-use, often low- income users

5 © eMeter Corporation 2004 Why is the State of CA interested? Relatively small changes in load can have large impact on energy costs. CPUC wants to enable consumer demand response and understands benefits to rate payers CPUC set 2007 goal at 5% of system peak demand CPUC believes that AMI is foundation for demand response Residential consumers offer greatest potential CA Load Duration Curve Planning Reserve Margin: 64,132 MW Spinning Reserve Required: 56,364 MW One quarter of capacity used less than 100 hours per yr

6 © eMeter Corporation 2004 How Much Does Residential Load Contribute to Peak? Source: California Energy Commission

7 © eMeter Corporation 2004 Historical Context of California’s Pilot 1957Steiner academic paper on “Peak Loads and Efficient Pricing” 1960s Time-of-use rates begin in Europe, growing to large scale 1970sFirst time-of-use rate experiments in U.S. 1980s A few larger time-of-use rate programs as metering costs begin to decline (Arizona Public Service, Salt River Project, Pacific Gas & Electric) 1985First integrated critical peak pricing + automated response experiment in U.S. (Southern Company) 1992First CPP program without automated response (Electricite de France) 2000First regular CPP + automated response program (Gulf Power) 2003First experiment testing CPP with and without automated response (California Statewide Pricing Pilot) and first residential hourly pricing program (Chicago Community Cooperative)

8 © eMeter Corporation 2004 Residential Dynamic Pricing Results: Price Elasticity –Fifty-six analyses and projects in the past 25 years –Average of -0.3 own-price elasticity Equals 30% usage reduction for 100% price increase (off-peak to peak) –California’s pilot providing one more data point Residential Own-Price Elasticities Recorded in Experiments/Programs More peak demand reduction Average result =-0.30 California data U.S./international data Source: King and Chatterjee, Public Utilities Fortnightly, July 1, 2003

9 © eMeter Corporation 2004 Residential Dynamic Pricing Results: Peak Demand Reduction –Results of 30 residential time-of-use and critical peak pricing programs –Results expressed as a percentage of customer’s total demand under non-time-based pricing Average reduction 24% More peak demand reduction

10 © eMeter Corporation 2004 Conservation Effect of Dynamic Rates –Payback or pre-cooling occurs for some end uses, such as air conditioning –No payback for other end uses, such as turning off lights –On average, there is net conservation in dynamic pricing programs Average reported conservation in 16 time-of-use and critical peak pricing programs was 4.0% – i.e. Gross reduction ( ) less payback and pre-cooling ( ) = 4.0% kW 1 24 Pre-cooling Hour of Day 12 Peak hours Payback Peak reduction

11 © eMeter Corporation 2004 Statewide Pricing Pilot Overview Statewide –Pacific Gas & Electric, San Diego Gas & Electric, and Southern California Edison –Sample of 2,500 customers statistically representative of the entire state –Residential and small commercial customers Goals –Measure peak demand reductions –Measure total consumption reductions –Assess customer preferences via participant experiences and market surveys Customers put in three primary treatment groups –Time-of-Use (TOU) Peak (2-7 pm weekdays) and off-peak Peak to off-peak price ratio about 2:1 –Critical Peak Pricing-Fixed (CPP-F) Peak (2-7 pm weekdays) and off-peak Much higher price – about 5x higher – during critical peak period (2-7 pm) on up to 15 days a year, with day-ahead notification –Critical Peak Pricing-Variable (CPP-V) Three differences from CPP-F – Critical peak period varies from 1 to 5 hours from 2-7 pm – Notification varies from day ahead to 4 hours ahead – All customers have smart thermostat programmed for automated response

12 © eMeter Corporation 2004 Critical Peak Pricing Rates Off-Peak Peak (2-7 pm) Critical Peak (2-7 pm) Critical Peak Notification to Customer (by 5 p.m.)

13 © eMeter Corporation 2004 Monthly Bill Summary

14 © eMeter Corporation 2004 CPP With Automated Response Technology provided to all CPP-V customers –Both residential and small commercial Outbound paging signal to thermostat Thermostat automatically adjusted up 4 degrees during critical peak hours Curtailment Signal Interval Meter Thermostat Status, Override Load Data Source: Karen Herter, California Energy Commission

15 © eMeter Corporation 2004 Statewide Pricing Pilot Results - Residential Rates went into effect July 1, events called during summer 2003 Analysis by Charles River Associates (contractor to joint utilities) completed January 16, 2004 (draft report; final data may differ) Performance MeasureAverage from the Literature California SPP Result Price elasticity (mean own price)-0.30CPP-F: CPP-V: TOU: Peak demand reduction – TOU20%24% Peak demand reduction – CPP without automated response 24%20% Peak demand reduction – CPP with automated response 44%49% Total usage reduction (conservation effect) 4%CPP-F: 6% CPP-V: 28% TOU: 9%

16 © eMeter Corporation 2004 Statewide Pricing Pilot Results – Small Commercial Same schedule and events as residential Small commercial groups did not include CPP-F Literature for small commercial is extremely limited Performance MeasureCalifornia SPP Result Price elasticity (own-price)(Still being analyzed) Peak demand reduction – TOU15% Peak demand reduction – CPP with automated response 67% Total usage reduction (conservation effect) (Still being analyzed)

17 © eMeter Corporation 2004 Q95: In your opinion, should the new program be offered to other residential customers in California? Please tell me if the new program should definitely not be offered, probably should not be offered, probably should be offered, or definitely should be offered to other customers./ Q96: Why do you feel that way? Preliminary Market Research Results Total CPP-V CPP-F TOU Total CPP-V CPP-F TOU Definitely Probably Why do you feel that way? You save energy19% You save money17% It’s good/we like it15% It makes people aware of energy conservation13% Everyone should have a chance to participate12% You can be in control/ manage your energy use 5% Business customers have similar views with 55% of TOU and 69% of CPP-V customers saying the program should “definitely” be offered TOTAL: 88% The vast majority of SPP program participants say the new program should be offered to other customers Source: Momentum Research Presentation to WG3, January 27, 2004

18 © eMeter Corporation 2004 Conclusions and Next Steps California results consistent with the literature Other states can learn from this rich body of data and research, including California’s pilot and hundreds of other pilots around the country Does demand response make AMI cost-effective? –California’s PUC estimates of long-term value Demand: $85 per kW-year, the levelized cost of a peaker plant Consumption: 6.6 cents per kWh –Advanced metering costs about $12 per customer-year more than electromechanical metering, once utility meter reading savings are deducted –Result: Benefit-Cost Ratio of 3.7 for residential customers Next steps in California’s rulemaking –Utilities filing plans to meet 2007 demand response goals on March 31 st –CPUC to issue business case methodology decision in June 2004 –Utilities will file rollout applications, including business cases, later this year

19 © eMeter Corporation 2004 Epilogue “The essence of knowledge is, having it, to apply it.” – Confucius