SGCC Peer Connect: Time-of-Use Pricing

1. SGCC Peer Connect: Time-of-Use Pricing May 7, 2013

2. Today’s Presenters David Eggart Energy Select Program Manager Gulf Power Company Ahmad Faruqui, Ph. D. Principal The Brattle Group

3. Housekeeping • You will receive a copy of the slides • To the email you used to register • You can ask questions as we go along • Simply type into the question box, as we will explain or raise questions during the Q&A • We will answer all the questions submitted • If we are unable to get to all the questions, they will be answered individually after the presentation

4. Questions & Audio If this is what you see – Click on the orange arrow to expand your dashboard. In order to ask questions over the phone, please log in with your Audio Pin. Click on the + sign to open up the questions box. Use the Questions box at any time to type questions. We will answer questions during a Q&A near the end of the call. Yes, you will receive the slides after the webinar.

5. Agenda • SGCC entering the conversation • Consumer pricing fact sheet • Dynamic pricing case study • Energy Select program • Load shape analytics • Analyzing the current TOU climate • TOU now • Low income segments • U.S. & International future • Q&A Session

6. SGCC’s Pricing Fact Sheet

7. Speaker #1

8. Time-of-Use Pricing David Eggart – Gulf Power Company

9. Background • Energy Select program initiated in 2000 • Largest CPP program in U.S. • 11,000+ customers • Energy Select = TOU-CPP • Automated Program

10. Program Goal: Residential advanced energy management system that delivers increased value to customers while providing peak reduction benefits to utility system. • Key components • Variable price rate • Ability to pre-program devices to automatically respond to variable prices • “Set it and forget it”

11. Customer Focus • Design the program where the customer can win • Design the program where if the customer wins, the company wins • Keep the message and the mission clear

12. Rate (RSVP) Price Per kWh* Standard Residential Rate 9.9 cents/kWh LOW 7.3 cents MEDIUM 8.5 cents HIGH 15.4 cents CRITICAL 59.4 cents * All prices are as of 01/01/13, excluding any applicable taxes. These prices are subject to change. Price per kWh $0.50 Critical 59.4 (Limited To 87Hrs/Yr) $0.20 High 15.4 Standard Residential Rate 10.1 cents $0.10 8.5 Medium 7.3 Low

13. Customer Portals Back office Software IntelliSOURCE 2-Way, Interactive 2-Way, AMI AMI Headend Internet AMI Network • Feature Set • Provisioning • Metering • Pricing • Feature Set • TOU/CPP • Programming • FW Update • Addressing • Metering • Analysis Digi GW ZigBee HAN HAN Devices Load Control Device Smart PCT

14. Customer Web Portals

15. Benefits: Customer • Increased customer satisfaction and engagement • Control energy based on price • Lower price of electricity 87% of the time. • Savings – Avg annual savings/home – 736 kWH Utility • Reliable MWs at “push of a button” • Better use of existing generation

16. Load Reduction Typical Summer Day CP Reduction – 1.74 KW/home

17. Load Reduction Typical Winter Day CP Reduction – 2.36 KW/home

18. "It was one of the easiest things I've ever done". "I just set the thermostat and let it save me money. The biggest change is that it makes you more aware of your habits and usage of electricity." Energy Select Customer

19. Speaker #2

20. CREATING THE FUTURE OF TIME-OF-USE PRICING Ahmad.Faruqui@Brattle.Com The views expressed in this letter are strictly those of the authors and do not necessarily state or reflect the views of The Brattle Group, Inc.

21. Two views of the future • The future, though imminent, is obscure.Winston Churchill • The best way to predict the future is to create it. Peter Drucker The Brattle Group

22. The present situation • Even though American consumers routinely encounter time-of-use pricing in daily life, from parking a car to buying an airline ticket, they do not encounter it when buying electricity • About one in four residential customers have smart meters but only two in one hundred are on a time-of-use rate • One of the barriers is a perception that customers won’t respond The Brattle Group

23. A history lesson – price elasticity is alive and well in the world of electricity The Brattle Group

24. The Arc of Price Responsiveness allows predictions to be made • Peak to Off-Peak Price Ratio = 5 • Pricing-Only: ~11.4% peak reduction • Pricing + Tech: ~20.7% peak reduction • Peak to Off-Peak Price Ratio = 10 • Pricing-Only: ~14.7% peak reduction • Pricing + Tech: ~28.0% peak reduction The Brattle Group

25. Even low income customers respond The Brattle Group

26. Indeed, 80% of low income customers may be over-paying for electricity on flat rates . The Brattle Group

27. An American tour of the future Arizona • Over two decades, Arizona Public Service has enrolled 51% of its customers on a voluntary TOU rate and the Salt River Project has enrolled about 30% of its customers on a voluntary TOU rate • In both cases, the TOU rate appeals to large consumers who avoid the upper tier of an inclining block rate by going with TOU California • PG&E has enrolled 80,000 customers on CPP • SDG&E is offering PTR on an opt-out basis to nearly two million customers • SCE is offering PTR on an opt-in basis to millions of customers Illinois • Both the investor-owned utilities, ComEd and Ameren, have enrolled about 25,000 customers on RTP in Illinois • A new state law calls for opt-in PTR to be offered statewide The Brattle Group

28. An American tour (concluded) Oklahoma • OG&E has begun rolling out VPP and hopes to sign up 20% of its customers over the next 2 years • By so doing, it hopes to avoid building a medium-sized power plant The Mid-Atlantic Region • BGE and PHI will be offering PTR to 2 million customers over the next few years in Delaware, Maryland and the District of Columbia • PJM is allowing price-responsive demand to be bid into its multi-state markets, as AMI and dynamic pricing are rolled out in its footprint of 51 million customers The Brattle Group

29. An international tour of the future Canada (Ontario) • 3.9 million (81%) residential and small business customers are on TOU rates under a regulated retail pricing plan (March 2012) • All customers have the option of switching over to retail providers China • Beijing: 62% of the population was on TOU rates by the end of 2003 • Hebei: 40,000 customers (about half of all sales) are on TOU rates Additionally, Hebei has instituted a mild CPP rate • Jiangsu: Voluntary residential TOU since 2003 • Shanghai: TOU rate with a 4.5-to-1 peak to off-peak price ratio France • Électricité de France has offered residential customers CPP across France through the tempo tariff since 1996 • About half a million customers have enrolled into the rate The Brattle Group

30. International tour (concluded) Ireland • The Commission for Energy Regulation is currently assessing the pros and cons of mandating TOU tariffs • Stakeholder engagement will follow in 2013 Italy • Currently, 28.8 million customers are on a TOU program • 18.8 million are residential customers • ~91% of these residential customers have defaulted to the TOU tariff United Kingdom • Consumer Focus found ~75% of consumers on TOU tariff are satisfied • Most popular TOU tariff is the Economy 7 tariff The Brattle Group

31. Creating the Future • Opt-in • Makes sense but only if the dynamic pricing rate is net of the hedging premium in flat rates and if dynamic pricing rates are simple and easy for customers to understand • The rates should offer customers significant savings potential and also be offered in a way that appeals to other customer needs besides just saving money. • Opt-out • Best to offer it with full bill protection for the first year and to phase this out over the next two to three years • An alternative is to offer two-part rates • Another alternative is to offer peak-time rebates The Brattle Group

32. Opt-in Opt-in participation rates tend to be quite low • The rate is 1% in the US for time-varying rates and 1% of that 1% for dynamic pricing rates However, if the hedging premium that is embedded in flat rates is removed from the dynamic pricing rate, making it less expensive than the flat rate, higher participation rates can be expected • The Arizona example cited earlier makes the point: TOU rates have been selected by 51% of the customers for one utility and by 29% for another The Brattle Group

33. Opt-out If dynamic pricing is offered on an opt-out basis, societal benefits will be maximized but several people may see higher bills • They could be allowed to opt-out • Selective opting out by the most expensive to serve customers could result in high rates for everybody • Better to ensure adequate protections for all customers in the first few years The Brattle Group

34. To manage the politics, the best option may be to put forward a hybrid offering • Mandatory for customers above a certain size • Optional for low income consumers • Opt-out for everyone else The Brattle Group

35. Takeaways & Questions

36. Thank you! You will receive a copy of the slides to the email address you used to register. David Eggart Energy Select Program Manager Gulf Power Company wdeggart@southernco.com Ahmad Faruqui, Ph. D. Principal The Brattle Group Ahmad.Faruqui@brattle.com • Links to Resources: • Gulf Power Energy Select Website: • http://www.gulfpower.com/energyselect/ • The Brattle Group Economic and Financial Experts Website: • http://www.brattle.com/ • SGCC’s Pricing Fact Sheet: • http://smartgridcc.org/news-events/resource-release-sgccs-pricing-fact-sheet

37. Source documents (Dynamic pricing bibliography available on request) • Federal Energy Regulatory Commission staff. A National Assessment of Demand Response Potential. June 2009. http://www.ferc.gov/legal/staff-reports/06-09-demand-response.pdf • Faruqui, Ahmad and Neil Lessem, Managing the Costs and Benefits of Dynamic Pricing, Australian Energy Market Commission: Power of Choice Review, September 2012. http://www.aemc.gov.au/market-reviews/open/power-of-choice-update-page.html • Faruqui, Ahmad, Ryan Hledik and Jennifer Palmer, Time-Varying and Dynamic Rate Design, Regulatory Assistance Project, July 2012. http://www.raponline.org/topic/global-power-best-practice-series • Faruqui, Ahmad and Doug Mitarotonda, “Energy Efficiency and Demand Response in 2020: A Survey of Expert Opinion,”The Brattle Group, November 2011. http://www.brattle.com/_documents/UploadLibrary/Upload990.pdf • Faruqui, Ahmad and Jenny Palmer, “The Discovery of Price Responsiveness – A Survey of Experiments Involving Dynamic Pricing of Electricity,” EDI Quarterly, April 2012. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2020587 • Faruqui, Ahmad and Jenny Palmer, “Dynamic Pricing and its Discontents,” Regulation, Fall 2011. http://www.cato.org/pubs/regulation/regv34n3/regv34n3-5.pdf • Wood, Lisa and Ahmad Faruqui, “Dynamic Pricing and Low-Income Customers: Correcting misconceptions about load-management programs,” Public Utilities Fortnightly, November 2010, pp. 60-64. http://www.fortnightly.com/archive/puf_archive_1110.cfm The Brattle Group

38. The Brattle Group Contacts www.brattle.com North America Washington, DC +1.202.955.5050 Cambridge, MA +1.617.864.7900 San Francisco, CA +1.415.217.1000 Europe London, England +44.20.7406.7900 Madrid, Spain +34.91.418.69.70 Rome, Italy +39.06.48.888.10 The Brattle Group