RTP as a Demand Response Program – How Much Load Response Can You Expect?

1. RTP as a Demand Response Program – How Much Load Response Can You Expect? Peak Load Management Alliance Fall Conference November 2001 Steven Braithwait Christensen Associates

2. Christensen Associates • Economic and engineering consulting for energy industry • 25 years of experience in designing and evaluating retail pricing strategies – • TOU (traditional and competitive) • Real-time pricing (NiMo, Georgia Power, KCP&L) • Market-based interruptible load programs

3. Sound Bites from Yesterday • “Square peg in round hole”Customers aren’t generators • Trends in DR programs?Look at competitive markets • “Dollars on the table”Focus on NEW $$$ from efficient pricing • “Keep it simple”Here are tomorrow’s prices, you decide…

4. Topics • Real-time pricing as a DR program • Capturing the benefits of DR and RTP • Evidence of RTP load response • Technology facilitates residential “RTP”

5. What is Real-time Pricing (RTP)? • A market-basedpricing strategy • Customers face hourly spot market prices • Advance notice – day-ahead; hour-ahead • Price protection through hedging/price caps • Works in regulated and competitive markets • Ademand response program • RTP customers provide load reductions at times of high wholesale prices

6. RTP at Georgia Power Company • 1,700 C & I customers • 5,000 MW (80% of C & I sales) • Day-ahead (75%) & hour-ahead (25%) • Load response: 500 – 1,000 MW (at prices of $500 – $2,000/MWh)

7. Benefits of Demand Response • Connects wholesale and retailmarkets • Demand response at high prices can reduce wholesale price spikes

8. B E´ Phot A E Dhot Dnormal Qhot Connected Markets: Demand Response Yields Lower Wholesale Prices $/MWh WP Lnormal Lhot Pspike Retail Price Pnormal GWh Qnormal Qspike

9. Capturing the Benefits of DR • To capture benefits, the amount of demand response must be measured and anticipated (e.g., in unit dispatch and power purchases)

10. Measuring Non-RTP DR • DR programs pay for “performance” • However, cannot “measure” performance (i.e., load reductions) by metering • Load response (LR) must be estimated: LR = Baseline load - Actual load Problems in estimating CBL; $$ at risk

11. Measuring and Forecasting RTP Load Response • For billing: No “verification” problem – RTP customers pay for what they consume • For forecasting: • Develop load response model based on analysis of historical experience • Advantage of aggregating over customers

12. RTP Load Response Curve for Georgia Power (Load Response as a Percent of Total RTP Load)

13. Evidence of RTP Load Response • Georgia Power Real-Time Pricing (RTP) • 1,700 large C & I customers; 5,000 MW of load • Duke Power Hourly Pricing • 100 large industrialcustomers; 1,000 MW • GPU Energy “Critical price” TOU • 1997 residentialpilot program

14. Summary of RTP Price Responsiveness • Significant, consistent load response • Small to modest price elasticities • Wide range across customer types • Most price responsive customers: • Electricity intensive (e.g., most intensive industrials; residential customers with most major appliances) • Enabling technology (e.g., own generation; storable production process; automatic controls)

15. Load onhighest-price day Highest DA prices GP RTP Load Response (DA): Very High-Price(Load response = 500 MW; 20% of reference load)

16. 0.400 0.350 0.300 Veryhigh price 0.250 Moderatelyhigh price 0.200 0.150 0.100 0.050 0.000 HA OSG - I Non-Int - I OSG - C Non-Int - C Diversity of Customer Price ResponsivenessPrice Elasticity by Customer Type and Price Level

17. Duke Power RTP Load Response (per Tom Taylor, Rates and Regulation) • 100 industrial customers; 1,000 MW • Total load response when Price > $.25/kWh • 200 MW, or 20% of expected load • 20 customers reduced load by > 5% • Significant price elasticities for 25% of customers

18. GPU “Critical-price” TOU RateEffect of Technology on Load Response • TOU rate, plus critical price($.50/kWh) • Interactive communication system • customers pre-select thermostat settings and circuit priority at different price triggers • utility can send critical price signal • Similar programs at AEP, Gulf Power

19. “Critical-price” TOU Rate Design 0.5 Critical price 0.4 0.3 Rate 6173 Standard Rate 0.2 Rate 9122 0.1 0 1 8 14 18 20 24

20. 4.00 3.50 3.00 2.50 Control Average Hourly Usage: kWh/hr. 2.00 Treatment 1.50 Peak 1.00 S S 0.50 OP OP 0.00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Residential TOU Load Response – Critical Price Day

21. Conclusions • RTP offers demand response in a natural retail market setting • Methods are available for anticipating RTP load response at different price levels • Evidence is available on amount of RTP load response to expect

22. For Additional Information: • Customer Response to Market Prices – How Much Can You Expect When You Need it Most?, Steven Braithwait and Michael O’Sheasy, EPRI Pricing Conference, July 2000. • Residential TOU Response in the Presence of Interactive Communication Equipment, Steven Braithwait, in Pricing in Competitive Electricity Markets, Ahmad Faruqui, Ed. • The Choice Not to Buy: Energy Savings and Policy Alternatives for Demand Response, Steven Braithwait and Ahmad Faruqui, in Public Utilities Fortnightly, March 15, 2001. Contact:Steve Braithwait (sdbraithwait@lrca.com)Christensen Associates608-231-2266

23. Types of Demand Response Programs • Demand-side bidding – customers bid load reductions into the wholesale market • “Buy-back,” or pay-for-performance interruptible • Suppliers buy load reductions, relative to baseline, at price tied to market price • Real-time (hourly) pricing • Full-time • Part-time; whenever cost exceeds specified level

24. How to Estimate Reference Load? • Historical load on same day-type (e.g., summer Tuesday, with “hot” weather) • Rolling average of loads on “non-event” days (e.g., previous 10 weekdays) • Average load in previous hours (e.g., previous 3 hours) Key objective – avoid “gaming” possibilities

25. WP Lhot Lnormal Pspike Pnormal Qnormal Qspike “Disconnected” Electricity Markets:Fixed retail price  no demand response $/MWh Retail Price GWh