can residential customers respond to dynamic pricing? nancy brockway multi-utility sector chief...

Can Residential Customers Can Residential Customers Respond to Dynamic Respond to Dynamic

Pricing?Pricing?NANCY BROCKWAYNANCY BROCKWAY

Multi-Utility Sector ChiefMulti-Utility Sector Chief

National Regulatory Research InstituteNational Regulatory Research Institute

A presentation to theA presentation to the

Kansas Corporation Commission Workshop on Energy EfficiencyKansas Corporation Commission Workshop on Energy Efficiency

Topeka, KansasTopeka, Kansas

March 25, 2008March 25, 2008

Nancy Brockway, NRRI March 2008Nancy Brockway, NRRI March 2008 22

What I’ll coverWhat I’ll cover Residential customer responsesResidential customer responses

Load reductions - Percents or ElasticitiesLoad reductions - Percents or Elasticities Broken down by socioeconomic variablesBroken down by socioeconomic variables

Low useLow use Low incomeLow income Presence of Central Air, Smart Thermostats, etc.Presence of Central Air, Smart Thermostats, etc.

Results of major pilots of dynamic pricingResults of major pilots of dynamic pricing• California Special Pricing PilotCalifornia Special Pricing Pilot

• Energy SmartEnergy Smart™ Pilot Program™ Pilot Program

• Ontario Smart Pricing PilotOntario Smart Pricing Pilot

• See NRRI AMI Paper reading list for results of other pilotsSee NRRI AMI Paper reading list for results of other pilots


What I won’t coverWhat I won’t cover

Bill impacts – At least not in detail, nor definitivelyBill impacts – At least not in detail, nor definitively Costs of implementing dynamic pricingCosts of implementing dynamic pricing System savings achieved by reducing peak demandsSystem savings achieved by reducing peak demands Alternative approaches to reducing peaks,Alternative approaches to reducing peaks,

• And their costs.And their costs.

These are important questions, These are important questions, • on which a lot has been written. on which a lot has been written.

• See reading list Appendix to NRRI Report 08-03See reading list Appendix to NRRI Report 08-03• http://nrri.org/pubs/multiutility/advanced_metering_08-03.pdfhttp://nrri.org/pubs/multiutility/advanced_metering_08-03.pdf


Overview of PresentationOverview of Presentation

Describe pricing options consideredDescribe pricing options considered Summarize arguments pro and con Summarize arguments pro and con For each pilot For each pilot

Describe pilot design briefly, andDescribe pilot design briefly, and Discuss average results for different pricing optionsDiscuss average results for different pricing options

Discuss results for low use and low-incomeDiscuss results for low use and low-income Discuss some methodological issuesDiscuss some methodological issues ConclusionsConclusions


Pricing Types DefinedPricing Types Defined StaticStatic – – Set in advance; don't change w/ changing system costsSet in advance; don't change w/ changing system costs

Flat $/kWhFlat $/kWh Time of Use (TOU) – Seasonal/Diurnal/otherTime of Use (TOU) – Seasonal/Diurnal/other

DynamicDynamic – – Change to match actual system costsChange to match actual system costs Real Time Pricing (RTP)Real Time Pricing (RTP)

Prices updated at least daily, typically on an hourly basisPrices updated at least daily, typically on an hourly basis Pacific NW – pilot interactive pricingPacific NW – pilot interactive pricing

Critical Peak Pricing (CPP) or Critical Peak RebatesCritical Peak Pricing (CPP) or Critical Peak Rebates Very high prices for 2-5 hours, 80-100 hrs/yearVery high prices for 2-5 hours, 80-100 hrs/year Days with highest system peak Days with highest system peak → → highest system costhighest system cost Day-ahead or hours-ahead notification of customerDay-ahead or hours-ahead notification of customer


Chart of CPP/TOU/Flat Rate Prices on a Critical Peak Day

Cents/kWh

Hours


““Just say no”Just say no” Benefits don't justify costs:Benefits don't justify costs:

““Most residentials cannot save”Most residentials cannot save” Cannot shift load to off-peak hoursCannot shift load to off-peak hours Cost of metering will eat up savingsCost of metering will eat up savings Big problem for low-use and low-income customersBig problem for low-use and low-income customers These customers will sufferThese customers will suffer

““Those residentials who can save, won't”Those residentials who can save, won't” Have enough money to pay the peak pricesHave enough money to pay the peak prices Will just buy through, so no system benefitWill just buy through, so no system benefit Effects will not persist, but costs willEffects will not persist, but costs will


Just say “Yes”Just say “Yes”

Benefits claimed: Benefits claimed: • Reduce peaks/Reduce peaks/Reduce need for expensive, risky new capacityReduce need for expensive, risky new capacity• Align customer rates with cost-causation Align customer rates with cost-causation • Gives customers control over their usage and billsGives customers control over their usage and bills• Spurs efficiency behavior, and thus lowers emissionsSpurs efficiency behavior, and thus lowers emissions

Drawbacks addressed:Drawbacks addressed:• Small and low-income customers can and will switchSmall and low-income customers can and will switch• Bills will be reduced, not increasedBills will be reduced, not increased

System costs will go downSystem costs will go down Low use have better load profileLow use have better load profile Rate design can help mitigate impact of new metering costsRate design can help mitigate impact of new metering costs

• Can address specific adverse impactsCan address specific adverse impacts• Make it voluntary (opt in or opt out)Make it voluntary (opt in or opt out)


Let's look at the factsLet's look at the facts

Three recent pilots with controls/evaluationsThree recent pilots with controls/evaluations

California Special Pricing PilotCalifornia Special Pricing Pilot Energy SmartEnergy Smarttm tm Pricing Pilot – Chicago Pricing Pilot – Chicago Ontario Energy Board Smart Price PilotOntario Energy Board Smart Price Pilot


California Special Pricing ProjectCalifornia Special Pricing Project July 2003 – September 2004July 2003 – September 2004 All participants given interval metersAll participants given interval meters 3 pricing approaches - TOU, 2 CPP groups3 pricing approaches - TOU, 2 CPP groups

TOU – TOU – off peak, shoulder, on-peakoff peak, shoulder, on-peak Critical peak pricing:Critical peak pricing:

12 summer and 3 winter Critical Peak events (+/- 75 hrs)12 summer and 3 winter Critical Peak events (+/- 75 hrs) $/kWh averaged 3X normal on-peak, 6X off-peak$/kWh averaged 3X normal on-peak, 6X off-peak

Low-IncomeLow-Income w/ and w/out cw/ and w/out community energy educationommunity energy education Urban residents – MF, little A/CUrban residents – MF, little A/C


CA SPP: 2 CPP Groups,CA SPP: 2 CPP Groups,Fixed Notice and Variable NoticeFixed Notice and Variable Notice

No PCT No PCT → → CPP-F CPP-F 5 hour CPP events5 hour CPP events Day ahead notice of CPP event Day ahead notice of CPP event

PCT PCT →→ CPP-V CPP-V 5-hour CPP events and 2-hour CP events.5-hour CPP events and 2-hour CP events. Day of (4 hour) notice of CP eventDay of (4 hour) notice of CP event And PCTs signaled at beginning of CP eventAnd PCTs signaled at beginning of CP event

All =All = SFH with central A/C, and SFH with central A/C, and Use > 600 kWh/mo.Use > 600 kWh/mo.

PCT = Programmable Communicating Thermostat PCT = Programmable Communicating Thermostat


CA SPPCA SPPAve. CP response of CPP-F, by bundled temp. bandsAve. CP response of CPP-F, by bundled temp. bands**

Source: Herter, et al, Table 2Source: Herter, et al, Table 2

-20%

-15%

-10%

-5%

0%

5%

10%

% Load Change

50 - 54.955 - 59.950 - 64.965 - 69.970 - 74.975 - 79.980 - 84.985 - 89.990 - 94.995 - 99.9100 - 104.9


CA SPPCA SPP Ave. CP response of CPP-V by temperature bandsAve. CP response of CPP-V by temperature bands

Source: Herter, et al., Table 2Source: Herter, et al., Table 2

-45%

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5 Hr. CP 2 Hr CP

70 - 74.9

75 - 79.9

80 - 84.9

85 - 89.9

90 - 94.9


Energy SmartEnergy SmartTM TM Pricing PilotPricing Pilot

• Chicago, Illinois area, 2003-2006Chicago, Illinois area, 2003-2006• Community Energy Cooperative + ComEdCommunity Energy Cooperative + ComEd

• Residential customersResidential customers• Coop members invited; by 3Coop members invited; by 3rdrd year, 1400 joined year, 1400 joined

• Hourly Day-ahead RTP, with “High Price” NotificationHourly Day-ahead RTP, with “High Price” Notification• Advance notice of next day pricesAdvance notice of next day prices• Some days = ”high price” days (> 10Some days = ”high price” days (> 10¢/kWh energy) ¢/kWh energy) special noticespecial notice• Interval meters installedInterval meters installed• 2 pricing groups: RTP and RTP w/ DLC2 pricing groups: RTP and RTP w/ DLC

• Relatively low-techRelatively low-tech• Smart Thermostats offeredSmart Thermostats offered

57 participants fitted with DLC on A/C from yr 257 participants fitted with DLC on A/C from yr 2• Phone, email, fax notice of upcoming critical peakPhone, email, fax notice of upcoming critical peak


ESPP Results: ESPP Results: Weather & PCTs Make a DifferenceWeather & PCTs Make a Difference

2003 (cool summer)2003 (cool summer)• Price elasticity = 4.2 on averagePrice elasticity = 4.2 on average• Responses “decayed” over time, but were “recharged” with time Responses “decayed” over time, but were “recharged” with time

2004 (cool summer):2004 (cool summer): • Price elasticity = 8 on average over all hoursPrice elasticity = 8 on average over all hours• But on average, no significant response to “high price” daysBut on average, no significant response to “high price” days

On average,On average, increased increased load 8% late on one “high price” dayload 8% late on one “high price” day

• A/C w/DLC – reduced as much as 9% & 11%A/C w/DLC – reduced as much as 9% & 11% 2005 (very hot summer):2005 (very hot summer):

• Price elasticity = 4.7 on averagePrice elasticity = 4.7 on average Big response to high price daysBig response to high price days PCT with DLC increased price elasticity about 1/3 (to 6.9)PCT with DLC increased price elasticity about 1/3 (to 6.9)


Ontario Smart Pricing PilotOntario Smart Pricing Pilot Ottawa, August 2006 - February 2007Ottawa, August 2006 - February 2007

• 3 Pricing Groups and a Control3 Pricing Groups and a Control TOU – from 3.5 cents off-peak to 10.5 cents on peakTOU – from 3.5 cents off-peak to 10.5 cents on peak CPP – 30 cents on CPP (w/ lower off-peak price)CPP – 30 cents on CPP (w/ lower off-peak price) CPR – 30 cent CPR – 30 cent rebate rebate for below-baseline CPP usagefor below-baseline CPP usage Up to $75 incentive payment if reduce load during pilotUp to $75 incentive payment if reduce load during pilot

• Those with interval meters invited to join.Those with interval meters invited to join.• Participants disproportionately:Participants disproportionately:

SFHSFH Newer housingNewer housing Central airCentral air More educationMore education Higher incomeHigher income


OSPP load responses OSPP load responses by rate and time of useby rate and time of use

Summer Critical Summer Critical Peak HoursPeak Hours

Summer, Summer,

All Peak HoursAll Peak Hours

CPPCPP-25.4%-25.4% -11.9%*-11.9%*

CPRCPR -17.5%-17.5% -8.5%-8.5%

*N*Note – ote –

During summer non-CPP peaks, CPP participants During summer non-CPP peaks, CPP participants increased increased load 10.8%load 10.8%


CA SPP CA SPP Impact of Impact of UsageUsage on CPP Responses on CPP Responses Low-Use households Low-Use households

f (methodology)f (methodology)• Per HerterPer Herter• No statistically significant response to CPPNo statistically significant response to CPP• regardless of income levelregardless of income level

• Per CRA analysisPer CRA analysis• low-use hhlds reduced @ CPP 9% - 12%, on averagelow-use hhlds reduced @ CPP 9% - 12%, on average

High-Use householdsHigh-Use households Yes, statistically significant responses to CPPYes, statistically significant responses to CPP

• No statistical differences between income groupsNo statistical differences between income groups

• Per Herter analysisPer Herter analysis


CA SPP: CA SPP: CPP-F % Ave. Reduction in Peak UsageCPP-F % Ave. Reduction in Peak Usage

by Usage Level and End-Useby Usage Level and End-Use * *

*Source: CRA, SPP Evaluation, Summer 2003, Table 5-9; CRA, Final Report, Table 4-19*Source: CRA, SPP Evaluation, Summer 2003, Table 5-9; CRA, Final Report, Table 4-19

High Use

High Use

Single-FamilySingle-Family

Central A/C

Central A/C

-20%

-18%

-16%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

Year 1

High Use

Low Use

Single-Family

Multi-Family

Central A/C

No Central A/C


ESPP ESPP Elasticities Elasticities by housing type, space conditioning devicesby housing type, space conditioning devices

0

2

4

6

8

10

12

SF, no A/CWindow A/C

Central A/CMF, no A/C

Window A/CCentral A/C

Single Family

Multifamily


CA SPP CA SPP Low Income load response Low Income load response

Source: Source: M.Cubed and Charles River Associates, M.Cubed and Charles River Associates, Statewide Pricing Pilot Track B: Evaluation of Community-Based Enhancement Treatment.Statewide Pricing Pilot Track B: Evaluation of Community-Based Enhancement Treatment.

Lower income participants reduced less: Lower income participants reduced less: On average, “Track B” load response = 2.6%On average, “Track B” load response = 2.6%

• But a small # of participants pushed up the ave. responseBut a small # of participants pushed up the ave. response Statewide, <$40K groups reduced critical peak use by 10.9%*Statewide, <$40K groups reduced critical peak use by 10.9%* CARE – reduced critical peak use by 2.9%*CARE – reduced critical peak use by 2.9%*

Bill savingsBill savings before adding incremental metering costs.before adding incremental metering costs.• For lowest-income/low-use group = 2.7% reductionFor lowest-income/low-use group = 2.7% reduction• for lowest-income/high-use groups = for lowest-income/high-use groups = zerozero

* * Per Brattle Group analysisPer Brattle Group analysis


CA SPP vs. ESPPCA SPP vs. ESPP

The more the people in The more the people in the hhld, the less the the hhld, the less the responseresponse

SFH hhlds with CAC SFH hhlds with CAC had the strongest % had the strongest % response response

Hhlds w/highest Hhlds w/highest incomes had strongest incomes had strongest responses to CP events.responses to CP events.

The more the people at The more the people at home, the more the home, the more the responseresponse

MF households w/out MF households w/out A/C had the strongest % A/C had the strongest % responseresponse

Lower income hhlds had Lower income hhlds had stronger response to stronger response to “high price” days“high price” days


OSPP Bill ImpactsOSPP Bill ImpactsNot counting incremental metering costsNot counting incremental metering costs

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

% payless

% paymore

Ave. %savings

Maxsavings

Max.loss

CPP

CPR

CPPCPP• 83% paid lower bills83% paid lower bills

Average savings = 4.2%Average savings = 4.2% Greatest loss = 13.8%,Greatest loss = 13.8%, Greatest savings = 7.6%Greatest savings = 7.6%

CPRCPR• 73% paid lower bills73% paid lower bills

Average savings = 4.2%Average savings = 4.2% Greatest loss = 9.1%, Greatest loss = 9.1%, Greatest savings = 10.7%Greatest savings = 10.7%

Overall (including TOU)Overall (including TOU)• 75% of participants saved $, 75% of participants saved $, butbut• In August, CPP participants saw In August, CPP participants saw

higherhigher bills bills• In January, CPP participants saw In January, CPP participants saw

higherhigher bills bills


CA SPP - Mean Annual % Change in Bills

by Usage and Income (Without AMI Costs) Source – Herter, Figure 5Source – Herter, Figure 5

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%0

- $24

.9K

$25-

49.9

K

$50K

+

All

inco

mes

Low Use

High Use


Participation Rate ProblemParticipation Rate Problem

Proponents claims:Proponents claims: 20% take TOU/CPP if opt-in20% take TOU/CPP if opt-in 80% take if opt-out80% take if opt-out

But where is data?But where is data? SPP – opt in – 10% by end of pilotSPP – opt in – 10% by end of pilot Washington State – 90% opt in BUTWashington State – 90% opt in BUT

• Entire program eliminated after public outcryEntire program eliminated after public outcry Self-selection bias important on this issueSelf-selection bias important on this issue


Better Persistence Today?Better Persistence Today?

• Peaks can be more narrowly definedPeaks can be more narrowly defined

• High prices can be limited to 80 – 100 hoursHigh prices can be limited to 80 – 100 hours

• PCTs can automate responsePCTs can automate response

• Off-peak, non-critical peak prices are reducedOff-peak, non-critical peak prices are reduced

• Cost of hedging for flat pricing effects can be eliminatedCost of hedging for flat pricing effects can be eliminated

• Renewed public interest in lowering energy costsRenewed public interest in lowering energy costs


ConclusionsConclusions Many residential customers can & do respond to CP/RTP Many residential customers can & do respond to CP/RTP

pricing.pricing.• Benefits system greatly, by avoiding new capacityBenefits system greatly, by avoiding new capacity• CP Rebates can be attractive optionCP Rebates can be attractive option• Can be done without full AMI, where AMI not cost-effectiveCan be done without full AMI, where AMI not cost-effective

But jury is still out on But jury is still out on • Steady-state participation ratesSteady-state participation rates• PersistencePersistence• Bill impactsBill impacts

Low-use customers can benefit from CPP --- better load profileLow-use customers can benefit from CPP --- better load profile• Even if they don’t reduce loadEven if they don’t reduce load• ManyMany did did reduce load in pilots reduce load in pilots

High-use/Low-Income customers are at riskHigh-use/Low-Income customers are at risk• Need to identify, and direct bill and DSM assistance hereNeed to identify, and direct bill and DSM assistance here

PCTs produce dramatic resultsPCTs produce dramatic results


For more informationFor more information

http://nrri.org/pubs/multiutility/advanced_metering_08-03.pdfhttp://nrri.org/pubs/multiutility/advanced_metering_08-03.pdf

Nancy BrockwayNancy BrockwayChief, Multi-Utility SectionChief, Multi-Utility Section

NRRINRRI10 Allen Street10 Allen Street

Boston, MA 02131Boston, MA 02131

617-645-4018617-645-4018

[email protected]@nrri.org

can residential customers respond to dynamic pricing? nancy brockway multi-utility sector chief...

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