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Dynamic Pricing Transition Framework in the Pacific Northwest Energy Market

Explore the evolution from static to dynamic pricing models for energy in the Pacific Northwest, showcasing the benefits, costs, and examples of inverted block rates and critical peak time-of-use pricing. Learn about customer and system perspectives, cost implications, and policy considerations.

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Dynamic Pricing Transition Framework in the Pacific Northwest Energy Market

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  1. Pricing: Static to DynamicA Brief Framework Pacific Northwest Demand Response Program Rick Weston 5 December 2008 Website: http://www.raponline.org

  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 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 • 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

  4. 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.

  5. 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 Examples of Inverted Rates

  6. 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 Cost Bases of Inverted Rates

  7. Example: Critical PeakTime-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.

  8. Control Group Participation Incentive Critical Peak Rate CA Pilot: Residential Load Impacts(Incentives) Residential Response with Automation: Participation Incentive vs. Critical Peak Rate 5.0 CPP Event 4.5 4.0 3.5 3.0 2.5 kW 2.0 1.5 1.0 0.5 0.0 Noon 2:30 7:30 Midnight Hot Day, August 15, 2003, Average Peak Temperature 88.50 Source: Levy Associates, October 2005

  9. 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.

  10. Current Residential Rate Structures: Selected Utilities

  11. PacifiCorp • Residential Service, Oregon

  12. Idaho Power • Residential Service, Idaho

  13. Idaho Power • Res. CPP Service, Emmett Valley, Idaho

  14. Avista Power • Residential Service, Idaho

  15. Avista Power • Residential Service, Washington

  16. Tuscon Electric Power • Residential Service, Arizona

  17. Southern California Edison • Residential Service, California

  18. San Diego Gas and Electric • Residential Service, California

  19. Alliant • Residential Service, Iowa

  20. Xcel Energy • Residential Service, Minnesota

  21. Xcel Energy • Optional TOU Res. Service, Minnesota

  22. 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

  23. 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?

  24. 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?

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