TIME-OF-USE RATES – COST/BENEFIT ANALYSIS AND HISTORICAL PERSPECTIVE

1. TIME-OF-USE RATES – COST/BENEFIT ANALYSIS AND HISTORICAL PERSPECTIVE The Experience of Central Vermont Public Service Corporation (‘CVPS’) * Howard Spinner is Director of Economics and Finance at the Virginia State Corporation Commission.

2. THESE SLIDES DISCUSS: • HISTORY OF “RATES THAT MAKE SENSE” AT CENTRAL VERMONT PUBLIC SERVICE CORPORATION • DETAILED COST/BENEFIT ANALYSIS REGARDING THRESHOLDS FOR RESIDENTIAL TOU CUSTOMERS

3. CVPS BEGAN TO ASSAULT “OUT-OF-CONTROL” LOAD GROWTH OF THE LATE 1960’S WITH “PRICES THAT MADE SENSE” i.e. MARGINAL COST PRICING • SEASONAL RATES, VOL. & MAN. TOD RATES, END-USE RATES (CONTROLLED SPACE & WATER HEATING), SPECIAL CONTRACTS • SPECIAL CONTRACTS – SKI AREA INTERRUPTIBLE & SUPPLEMENTAL, SAW MILL SALEBACKS, OTHER INNOVATIONS.

5. The Result:

8. IT WORKED!!!! • IN THE WINTER OF 1990-1991, CVPS PEAKED IN WHAT HAD TRADITIONALLY BEEN AN “OFF-PEAK” HOUR • IMPLICATIONS FOR COST ALLOCATIONS

9. Story Told in Three Articles(The Problem of the Shifting Peak) • R.E. Schill, Load Management – Innovations and Techniques, PUF, 1/15/76 • H.M.Spinner, The Peak Shifts: 18 Years of Load Management, EJ, November, 1992 • Havel nos Spine´, Demand Response: The Future Ain’t What It Used To Be – Or Is It? Guest Editorial, EJ, July, 2002

10. SEASONAL RATES – ALL RES AND SM COMM LOAD (1974) • RELATIVELY COSTLESS • LOTS OF OPPOSITION • 2.4/1 PEAK/OFF-PEAK PRICE RATIO • DIRECT LOAD CONTROL RATES – THERMAL APPS • RESIDENTIAL TOD RATES (VOLUNTARY) • 6% OF RES CUST ON TOD RATE BY 1980 • 1982 PRIMARY AND TRANS VOLTAGE CUST GET SEASONAL RATES CLARIFYING TOD RATES SET IN 1970’S • SPECIAL CONTRACTS – LATE 1980’S

11. CVPS HISTORY MARKED BY MANY RATE DESIGN PROCEEDINGS • 1988 – VT. PSB Docket 4634 contained detailed testimony that calculated cost beneficial thresholds for mandatory TOD rates for residential customers. • Detailed calculations set forth in filed work papers include a step by step 18 page exhibit. • The cost beneficial threshold was – and still is – a function of meter costs, utility administration costs, customer compliance costs, peak vs. off-peak resource costs, peak/off-peak price ratio and the Allen elasticity of demand.

12. TOD RATES WERE ORIGINALLY OPTIONAL • BEGAN TO BE REQUIRED BY REGULATORS • IN 1985 (USING 1983 DATA), THE VT PSB SET • EXISTING: GO TOD IF > 30,000 KWH/MONTH • NEW: GO TOD IF > 1,500 KWH/MONTH • IN 1988 COMPANY SUPPORTED THE FOLLOWING NEW THRESHOLDS: • ALL NON-RES CUSTOMERS > 15,000 KWH/MO • ALL RES CUSTOMERS > 11,300 KWH/MO • HOW WHERE THESE THRESHOLDS SUPPORTED?

13. ALLEN ELASTICITY OF DEMAND • MINUS .181 • PEAK/OFF PEAK HR CONSUMPTION RATIO FALLS: • 1.333 (RATE 1) TO 1.039 (w/TOD RATE) PEAK SEASON • 1.089 (RATE 1) TO 0.9658 (w/TOD RATE) OFF SEASON • PEAK/OFF-PEAK PRICE DIFFERENTIAL • 4/1 PEAK SEASON • 2/1 Off SEASON • RESOURCE COST (1987)DIFFERENTIALS $/KWH PEAK SEASON: .106 (PH) .065 (OH) BENEFIT = $0.04 KWH OFF SEASON: .06 (PH) .035 (OH) BENEFIT = $0.025 KWH • INCREMENTAL CUSTOMER COSTS(1987) • $ 71 PER YEAR • UTILITY INCREMENTAL METER AND ADMINISTRATION COSTS • $ 96 PER YEAR (1987)

14. WHY AM I STANDING HERE TALKING ABOUT A SMALL VERMONT UTILITY’S RATE DESIGN HISTORY? • WHY AM I REVIEWING TESTIMONY FILED IN 1988? • IS THERE ANYTHING THAT CAN BE GLEANED FROM THIS THAT IS USEFUL TODAY? • DO PRICES MATTER?