Can Residential Customers Respond to Dynamic Pricing?

1. 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

2. What I’ll cover • Residential customer responses • Load reductions - Percents or Elasticities • Broken down by socioeconomic variables • Low use • Low income • Presence of Central Air, Smart Thermostats, etc. • Results of major pilots of dynamic pricing • California Special Pricing Pilot • Energy Smart™ Pilot Program • Ontario Smart Pricing Pilot • See NRRI AMI Paper reading list for results of other pilots Nancy Brockway, NRRI March 2008

3. What I won’t cover • Bill impacts – At least not in detail, nor definitively • Costs of implementing dynamic pricing • System savings achieved by reducing peak demands • Alternative approaches to reducing peaks, • And their costs. • These are important questions, • on which a lot has been written. • See reading list Appendix to NRRI Report 08-03 • http://nrri.org/pubs/multiutility/advanced_metering_08-03.pdf Nancy Brockway, NRRI March 2008

4. Overview of Presentation • Describe pricing options considered • Summarize arguments pro and con • For each pilot • Describe pilot design briefly, and • Discuss average results for different pricing options • Discuss results for low use and low-income • Discuss some methodological issues • Conclusions Nancy Brockway, NRRI March 2008

5. Pricing Types Defined • Static – Set in advance; don't change w/ changing system costs • Flat $/kWh • Time of Use (TOU) – Seasonal/Diurnal/other • Dynamic – Change to match actual system costs • Real Time Pricing (RTP) • Prices updated at least daily, typically on an hourly basis • Pacific NW – pilot interactive pricing • Critical Peak Pricing (CPP) or Critical Peak Rebates • Very high prices for 2-5 hours, 80-100 hrs/year • Days with highest system peak → highest system cost • Day-ahead or hours-ahead notification of customer Nancy Brockway, NRRI March 2008

6. Chart of CPP/TOU/Flat Rate Prices on a Critical Peak Day Cents/kWh Hours Nancy Brockway, NRRI March 2008

7. “Just say no” • Benefits don't justify costs: • “Most residentials cannot save” • Cannot shift load to off-peak hours • Cost of metering will eat up savings • Big problem for low-use and low-income customers • These customers will suffer • “Those residentials who can save, won't” • Have enough money to pay the peak prices • Will just buy through, so no system benefit • Effects will not persist, but costs will Nancy Brockway, NRRI March 2008

8. Just say “Yes” • Benefits claimed: • Reduce peaks/Reduce need for expensive, risky new capacity • Align customer rates with cost-causation • Gives customers control over their usage and bills • Spurs efficiency behavior, and thus lowers emissions • Drawbacks addressed: • Small and low-income customers can and will switch • Bills will be reduced, not increased • System costs will go down • Low use have better load profile • Rate design can help mitigate impact of new metering costs • Can address specific adverse impacts • Make it voluntary (opt in or opt out) Nancy Brockway, NRRI March 2008

9. Let's look at the facts • Three recent pilots with controls/evaluations • California Special Pricing Pilot • Energy Smarttm Pricing Pilot – Chicago • Ontario Energy Board Smart Price Pilot Nancy Brockway, NRRI March 2008

10. California Special Pricing Project • July 2003 – September 2004 • All participants given interval meters • 3 pricing approaches - TOU, 2 CPP groups • TOU – off peak, shoulder, on-peak • Critical peak pricing: • 12 summer and 3 winter Critical Peak events (+/- 75 hrs) • $/kWh averaged 3X normal on-peak, 6X off-peak • Low-Income • w/ and w/out community energy education • Urban residents – MF, little A/C Nancy Brockway, NRRI March 2008

11. CA SPP: 2 CPP Groups,Fixed Notice and Variable Notice • No PCT → CPP-F • 5 hour CPP events • Day ahead notice of CPP event • PCT → CPP-V • 5-hour CPP events and 2-hour CP events. • Day of (4 hour) notice of CP event • And PCTs signaled at beginning of CP event • All = • SFH with central A/C, and • Use > 600 kWh/mo. PCT = Programmable Communicating Thermostat Nancy Brockway, NRRI March 2008

12. CA SPPAve. CP response of CPP-F, by bundled temp. bands*Source: Herter, et al, Table 2 Nancy Brockway, NRRI March 2008

13. CA SPPAve. CP response of CPP-V by temperature bandsSource: Herter, et al., Table 2 Nancy Brockway, NRRI March 2008

14. Energy SmartTM Pricing Pilot • Chicago, Illinois area, 2003-2006 • Community Energy Cooperative + ComEd • Residential customers • Coop members invited; by 3rd year, 1400 joined • Hourly Day-ahead RTP, with “High Price” Notification • Advance notice of next day prices • Some days = ”high price” days (> 10¢/kWh energy) special notice • Interval meters installed • 2 pricing groups: RTP and RTP w/ DLC • Relatively low-tech • Smart Thermostats offered • 57 participants fitted with DLC on A/C from yr 2 • Phone, email, fax notice of upcoming critical peak Nancy Brockway, NRRI March 2008

15. ESPP Results: Weather & PCTs Make a Difference • 2003 (cool summer) • Price elasticity = 4.2 on average • Responses “decayed” over time, but were “recharged” with time • 2004 (cool summer): • Price elasticity = 8 on average over all hours • But on average, no significant response to “high price” days • On average, increased load 8% late on one “high price” day • A/C w/DLC – reduced as much as 9% & 11% • 2005 (very hot summer): • Price elasticity = 4.7 on average • Big response to high price days • PCT with DLC increased price elasticity about 1/3 (to 6.9) Nancy Brockway, NRRI March 2008

16. Ontario Smart Pricing Pilot • Ottawa, August 2006 - February 2007 • 3 Pricing Groups and a Control • TOU – from 3.5 cents off-peak to 10.5 cents on peak • CPP – 30 cents on CPP (w/ lower off-peak price)‏ • CPR – 30 cent rebate for below-baseline CPP usage • Up to $75 incentive payment if reduce load during pilot • Those with interval meters invited to join. • Participants disproportionately: • SFH • Newer housing • Central air • More education • Higher income Nancy Brockway, NRRI March 2008

17. OSPP load responses by rate and time of use Nancy Brockway, NRRI March 2008

18. CA SPP Impact of Usage on CPP Responses • Low-Use households • f (methodology) • Per Herter • No statistically significant response to CPP • regardless of income level • Per CRA analysis • low-use hhlds reduced @ CPP 9% - 12%, on average • High-Use households • Yes, statistically significant responses to CPP • No statistical differences between income groups • Per Herter analysis Nancy Brockway, NRRI March 2008

19. CA SPP: CPP-F % Ave. Reduction in Peak Usageby Usage Level and End-Use **Source: CRA, SPP Evaluation, Summer 2003, Table 5-9; CRA, Final Report, Table 4-19 Nancy Brockway, NRRI March 2008

20. ESPP Elasticities by housing type, space conditioning devices Nancy Brockway, NRRI March 2008

21. CA SPP Low Income load responseSource: M.Cubed and Charles River Associates, Statewide Pricing Pilot Track B: Evaluation of Community-Based Enhancement Treatment. • Lower income participants reduced less: • On average, “Track B” load response = 2.6% • But a small # of participants pushed up the ave. response • Statewide, <$40K groups reduced critical peak use by 10.9%* • CARE – reduced critical peak use by 2.9%* • Bill savingsbefore adding incremental metering costs. • For lowest-income/low-use group = 2.7% reduction • for lowest-income/high-use groups = zero * Per Brattle Group analysis Nancy Brockway, NRRI March 2008

22. The more the people in the hhld, the less the response SFH hhlds with CAC had the strongest % response Hhlds w/highest incomes had strongest responses to CP events. The more the people at home, the more the response MF households w/out A/C had the strongest % response Lower income hhlds had stronger response to “high price” days CA SPP vs. ESPP Nancy Brockway, NRRI March 2008

23. OSPP Bill ImpactsNot counting incremental metering costs • CPP • 83% paid lower bills • Average savings = 4.2% • Greatest loss = 13.8%, • Greatest savings = 7.6% • CPR • 73% paid lower bills • Average savings = 4.2% • Greatest loss = 9.1%, • Greatest savings = 10.7% • 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 2008

24. CA SPP - Mean Annual % Change in Bills by Usage and Income (Without AMI Costs)Source – Herter, Figure 5 Nancy Brockway, NRRI March 2008

25. Participation Rate Problem • Proponents claims: • 20% take TOU/CPP if opt-in • 80% take if opt-out • But where is data? • SPP – opt in – 10% by end of pilot • Washington State – 90% opt in BUT • Entire program eliminated after public outcry • Self-selection bias important on this issue Nancy Brockway, NRRI March 2008

26. Better Persistence Today? • Peaks can be more narrowly defined • High prices can be limited to 80 – 100 hours • PCTs can automate response • Off-peak, non-critical peak prices are reduced • Cost of hedging for flat pricing effects can be eliminated • Renewed public interest in lowering energy costs Nancy Brockway, NRRI March 2008

27. Conclusions • Many residential customers can & do respond to CP/RTP pricing. • Benefits system greatly, by avoiding new capacity • CP Rebates can be attractive option • Can be done without full AMI, where AMI not cost-effective • But jury is still out on • Steady-state participation rates • Persistence • Bill impacts • Low-use customers can benefit from CPP --- better load profile • Even if they don’t reduce load • Many did reduce load in pilots • High-use/Low-Income customers are at risk • Need to identify, and direct bill and DSM assistance here • PCTs produce dramatic results Nancy Brockway, NRRI March 2008

28. http://nrri.org/pubs/multiutility/advanced_metering_08-03.pdfhttp://nrri.org/pubs/multiutility/advanced_metering_08-03.pdf Nancy Brockway Chief, Multi-Utility Section NRRI 10 Allen Street Boston, MA 02131 617-645-4018 nbrockway@nrri.org For more information Nancy Brockway, NRRI March 2008