HOW WILL AMI & DYNAMIC PRICING AFFECT LOW INCOME USERS?

1. HOW WILL AMI & DYNAMIC PRICING AFFECT LOW INCOME USERS? Ahmad Faruqui, Ph. D. Principal National Association of Regulatory Utility Commissioners New York, New York July 18, 2007

2. Reasons why it might hurt them • They can’t shift much load since they don’t have much load to begin with • Most don’t have central or room air conditioning equipment • They have don’t the money to invest in enabling technologies that facilitate peak clipping and load shifting • They don’t have the money to pay an additional metering charge • AMI will be used to remotely disconnect them when they fall behind in their payments • Ergo, they will be made worse off and should be excluded from AMI and dynamic pricing

3. Reasons why it will help them • Many low-income customers will benefit from dynamic pricing since they have flatter-than-average load profiles • Others will benefit because they have a strong motivation to save money by curtailing peak load • California’s pricing experiment (SPP) provides supporting evidence • In Track B, which focused on low income consumers in San Francisco, consumers reduced peak load by 2.6 percent • In Track A, on a statewide basis, customers with incomes below $40,000 curtailed peak load by 10.9 percent and those on the CARE rate by 2.9 percent • The average customer in California curtailed peak load by 13 percent, the average customer in the temperate climate zone by 7.6 percent • All together, 77 percent of all customers saved money • Low-income users have also responded to RTP rates in Chicago

4. How can we protect low-income users? • Waive the AMI metering fee for all low-income users • Make the AMI metering fee volumetric, which would favor low users, many of whom would be low-income users • Raise the low-income discount on the monthly bill (in California, this is already 20 percent) • Credit them (and all other users) with a credit for the hedging premium when they shift to dynamic pricing • Monte Carlo simulations show that more than 95 percent of users would benefit if given a 3 percent hedging premium

5. With demand response, AMI and dynamic pricing become attractive to over 95% of customers

6. Should we protect low income users? • This is a major policy issue that should be debated in every state • What is not a good idea is the notion of excluding low-income users from AMI and dynamic pricing • This “Swiss cheese” deployment will prevent the full operational benefits of AMI being achieved • It will raise “The Gap” that has to be covered by demand response and prevent its deployment • All other customers will be deprived of demand response benefits that nationally speaking, could be in the $35 billion range

7. Additional reading • Brattle Group, The. “The power of five percent.” Discussion paper. May 2007. • Brattle Group, The. “Quantifying the benefit of demand response for PJM,” prepared for PJM Interconnection LLC. and MADRI, January 2007 • Faruqui, Ahmad. “Breaking out of the bubble: how dynamic pricing can mitigate rate shock,” Public Utilities Fortnightly, March 2007. • Federal Energy Regulatory Commission (FERC), The US. Demand Response and Advanced Metering, Staff Report, August 2006 • North American Electric Reliability Corporation (NERC). “2006 Long-Term Reliability Assessment,” October 16, 2006. • Plexus Research, Inc., Deciding on Smart Meters, Edison Electric Institute, September 2006.

8. Contact information • Ahmad Faruqui, Ph. D.Principal • The Brattle Group353 Sacramento Street, Suite 1140San Francisco, CA 94111Voice: 415.217.1026Fax: 415.217.1099Cell: 925.408.0149 • Email: Ahmad.Faruqui@Brattle.Com