1. The Regulatory Assistance Project 110 B Water St. Hallowell, Maine USA 04347 Tel: 207.623.8393 Fax: 207.623.8369 50 State Street, Suite 3 Montpelier, Vermont USA 05602 Tel: 802.223.8199 Fax: 802.223.8172 27 Penny Lane Cedar Crest, New Mexico USA 87008 Tel: 505.286.4486 E-Fax: 773.347.1512 Website: http://www.raponline.org Pricing: Static to Dynamic A Brief Framework Pacific Northwest Demand Response Program Rick Weston 5 December 2008

2. Outline  Overview of pricing  Survey of current mass market price structures  Some questions

3. Moving along the Continuum from Static to Dynamic Customers’ Perspective  Benefits –Bill savings –Recruitment or participation incentives –Enhanced awareness about energy usage –Better control of energy costs –Improved air quality –Faster power restoration after an outage  Costs –Cost of metering –Loss of privacy System’s Perspective  Benefits –Lower energy and capacity costs –Reduced air emissions –Align marginal rates with long-run marginal costs –Promotes efficient fuel choices –Elasticity effect produces energy savings –Tailblock price improves cost- effectiveness of energy efficiency, encourages participation in DSM programs  Costs –AMI hardware and software costs –Customer recruitment and maintenance costs

5. Example: Residential Inverted Block Rate  Tail block usage is space-conditioning and / or discretionary.  Set initial block at low enough level so most customers see tail block.  Inverted only in seasons of peak demands.

6. Examples of Inverted Rates  Pacific Power, Washington  Customer Charge: $6.00  First 600 kWh:$.04914  Over 600 kWh: $.07751 Schedule 16, Oct. 9, 2008  Arizona Public Service Company, Arizona  Customer Charge: $7.59  Summer –First 400 kWh$.08570 –Next 400 kWh$.12175 –Over 800 kWh $.14427  Winter –All kWh$.08327 Schedule E-12, July 1, 2007

7. Cost Bases of Inverted Rates Load-Factor Based  Different end-uses have different load factors: Resource-Cost Based  Different resources have different fully- allocated costs Older Baseload:$0.04 Newer Baseload:$0.08 Peakers:$0.12

8. Example: Critical Peak Time-of-Use Pricing  Flat or TOU rate during all “normal” hours.  Defined or Market price effective when market price exceeds defined threshold.  Customers get notice when Critical Peak rate is in effect.

9. Residential Response with Automation: Participation Incentive vs. Critical Peak Rate kW 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 Noon2:307:30 Critical Peak Rate Participation Incentive Control Group Midnight CPP Event CA Pilot: Residential Load Impacts (Incentives) Hot Day, August 15, 2003, Average Peak Temperature 88.5 0 Source: Levy Associates, October 2005

10. Example: Real-Time Pricing Options for Large C&I Customers  Georgia Power: Baseline- referenced RTP; customers see market price at margin.  PSE&G: Customers see market price for all consumption.  If both offered, customer chooses.

11. Current Residential Rate Structures: Selected Utilities

12. PacifiCorp  Residential Service, Oregon Distribution Basic Charge$7.50 per month 3-Phase Demand Charge$2.20/kW Distribution Energy Charge$0.03115/kWh Transmission Transmission & Ancillary Services$0.00394/kWh Energy Charges 0-500 kWh$0.03454/ kWh 501-1000 kWh$0.04106/kWh >1000 kWh$0.05082/kWh

13. Idaho Power  Residential Service, Idaho SummerNon-Summer Service Charge$4.00 per month Energy Charges 0-300 kWh$0.057783/kWh >300 kWh$0.065148/kWh$0.057783/kWh Note 1: May be subject to additional charges (e.g., fixed cost adjustment, power cost adjustment, energy efficiency fees, municipal franchise fees, and residential and small farm credits) Note 2: In the Emmett Valley, there is an optional residential seasonally-differentiated TOD service for customers whose usage exceeds 300 kWh/month. The Energy Watch CPP option is also available to such customers in the Emmett Valley.

14. Idaho Power  Res. CPP Service, Emmett Valley, Idaho SummerNon-Summer Service Charge$4.00 per month Energy Charges Energy Watch Event Hours$0.20000/kWhNa All other hours$0.057783/kWh Note1: May be subject to additional charges (e.g., fixed cost adjustment, power cost adjustment, energy efficiency fees, municipal franchise fees, and residential and small farm credits)

15. Avista Power  Residential Service, Idaho Service Charge$4.60 per month Energy Charges 0-600 kWh$0.0719/kWh >300 kWh$0.0805/kWh Note: May be subject to additional charges (e.g., fixed cost adjustment, power cost adjustment, energy efficiency fees, and residential and small farm adjustments)

16. Avista Power  Residential Service, Washington Service Charge$5.50 per month Energy Charges 0-600 kWh$0.05409/kWh 601-1300 kWh$0.06293/kWh >1300$0.07377/kWh Note: May be subject to additional charges (e.g., fixed cost adjustment, power cost adjustment, energy efficiency fees, and residential and small farm adjustments)

17. Tuscon Electric Power  Residential Service, Arizona Customer Charge $4.90/month Energy Charges Summer $0.0909/kWh Winter $0.0790/kWh

18. Southern California Edison  Residential Service, California Customer Charge$0.87/day Baseline Usage$0.1165/kWh 101% - 130% of Baseline$0.1366/kWh 131% - 200% of Baseline$0.2152/kWh 201% - 300% of Baseline$0.2515/kWh Over 300% of Baseline$0.2879/kWh

19. San Diego Gas and Electric  Residential Service, California SummerWinter Customer ChargeNone Baseline Usage$0.1256$0.1256/kWh 101% - 130% of Baseline$0.1468$0.1468/kWh 131% - 200% of Baseline$0.2594$0.2434/kWh Over 200% of Baseline$0.2794$0.2634/kWh Minimum Bill$5.10/month

20. Alliant  Residential Service, Iowa WinterSummer Service Charge$0.3547/meter/day ($10.79 per month) $0.3547/meter/month ($10.79 per month) Energy Charges First 16.438 kWh/day or first 500 kWh/month $0.06520/kWh$0.07930/kWh Next 23.014 kWh/day or next 700 kWh/month $0.04839/kWh$0.07586/kWh Over 39.452 kWh/day or over 1,200 kWh/month $0.02570/kWh$0.06926/kWh Note: Subject to an energy adjustment clause.

21. Xcel Energy  Residential Service, Minnesota Standard Electric Space Heating Customer ChargeOverhead$6.00/month8.00/month Underground$8.00/month$10.00/month Energy Charge Summer$0.067550/kWh Winter$0.058070/kWh$0.046070/kWh Note: Subject to a fuel adjustment clause and other adjustments

22. Xcel Energy  Optional TOU Res. Service, Minnesota Standard Electric Space Heating Customer ChargeOverhead$6.00/month8.00/month Underground$8.00/month$10.00/month Energy Charge Summer Peak$0.150180/kWh Winter Peak$0.119850/kWh$0.092590/kWh Summer Off-Peak$0.016040/kWh Winter Off-Peak$0.019560/kWh Note: Subject to a fuel adjustment clause and other adjustments. Peak hours are weekdays from 9:00 am to 9:00 pm

23. Rate design determines who’s bearing price volatility risk  From one extreme –Flat $/kWh price in all hours Volatility of wholesale price in the short run is borne by the supplier; presumably a premium for holding that risk (i.e., hedging it for the consumer) is included in the price  To the other –Real-time price in all hours The wholesale price is passed through to the customer in every hour; the customer bears the risk entirely  And everything in between –Seasonally differentiated, time-of-use, critical peak, and other pricing The volatility risk is shared in varying degrees by customer and supplier

24. Questions  What is the size of the demand-response resource associated with TOU, CPP, and other more dynamic pricing options?  What actions should be taken to answer this question? Rate design dockets Pilots such at the California critical peak pricing pilot –Are the lessons from other jurisdictions applicable here?  What effect does implementation of CPP and other time- sensitive pricing have on the procurement and provision of default service?

25. Policy Issues  Overall cost-effectiveness and AMI cost-recovery  Addressing multiple perspectives –Equity: There will be winners and losers; the program may look attractive for some and unattractive for others Are economically more efficient rates in fact more equitable? –Impacts on low-income customers Ability to respond to price signals, regulatory protections? –Revenue neutrality under the new rate designs Default service: adjustments for changed load profiles of responding customers Distribution service: impacts of conservation differ from those of load-shifting  Deciding on deployment strategy –Voluntary Opt-in or opt-out –Mandatory  Customer concerns about rate hikes and price instability  Relationship to energy efficiency and other clean energy programs –Dynamic pricing complements energy efficiency, but isn’t a substitute for it –How to allocate scarce investment dollars between efficiency and smart grid infrastructure?