dynamic pricing, tariffs, and price responsive demand programs real time pricing at georgia power...

Dynamic Pricing, Tariffs, and Price Responsive Demand Programs

Real Time Pricing at Georgia Power Company and Duke Power Company

Michael T. O’SheasyChristensen Associates

September 9, 2002

September 2002 2 CHRISTENSEN ASSOCIATES

Topics

What is RTP and What are the Benefits? RTP at Georgia Power Company and Duke

Power Company Why does an RTP Product make sense (and

cents)? Features of a Two-Part RTP and resultant

prices Price Response and Market Effects PPP and Portfolio Pricing


An electricity rate structure in which retail energy prices:

• Vary frequently (e.G., Hourly),

• With short notice (e.G., Hour-ahead or day-ahead),

• To reflect expected hourly costs

• It can mimic an open market and market prices

What is Real-Time Pricing?


Benefits from a Real-Time Pricing Program

Improved system reliability Reduced wholesale price volatility Less reliance on outside (high-priced) power

purchases Typical utility will achieve, at least cost, a “virtual

generation” asset to achieve about 5% of total system load requirements in critical hours (about 20% load response of load participants total load)


Benefits from a Real-Time Pricing Program

Customer satisfaction— Provides open access to market— Two-part structure limits price risk exposure

Facilitates economic growth— Industrial/commercial customers on RTP grow faster— Growth tends to occur off-peak— Utilities “earnings before income taxes” may increase

RTP customers have incentive to innovate with economic energy efficiency programs/devices


The Duke Program

Program Began Fall of 1993Program Began Fall of 1993 Currently 53 CustomersCurrently 53 Customers Average PricesAverage Prices

—Transmission $.034Transmission $.034—Distribution $0.04Distribution $0.04

Demand Reduction 200 mW at High PricesDemand Reduction 200 mW at High Prices Two-Part Tariff DesignTwo-Part Tariff Design

Program Began Fall of 1993Program Began Fall of 1993 Currently 53 CustomersCurrently 53 Customers Average PricesAverage Prices

—Transmission $.034Transmission $.034—Distribution $0.04Distribution $0.04

Demand Reduction 200 mW at High PricesDemand Reduction 200 mW at High Prices Two-Part Tariff DesignTwo-Part Tariff Design


Price Responsive Customers

Universities with Generators Textile and Chemical Fiber Plants with Generators Large Paper Manufacturer with Grinders Steel Mill and Electrode Manufacturer Each with

an Arc Furnace Brewery with Generator Food Processor with Generator 25 Customers Identified as Price Responsive


Typical Duke Prices on High Price and Average Price Day

0

50

100

150

200

250

300

1 3 5 7 9 11 13 15 17 19 21 23 25

Hours

$/m

Wh


RTP in the State of Georgia Year 2001

Largest Program in the World > 1600 Customers

— > 5,000 MW— > $1 billion revenue

IRP Resource Price Protection Products


Real-Time Pricing for GPC

Two-part tariff design Day-ahead RTP

— 250 kW minimum Hour-ahead RTP

— 5 MW minimum


GPC Philosophy on RTP

1. RTP is the marginal cost of providing electricity

• Lambda

• Losses

• Marginal Cost of Transmission

• Outage/ct Cost

• Risk Adder


2. Powerful Product in a supplier’s Pricing Portfolio

• Customers Satisfaction

• Economic Development

• Customer Choice

• Constant Profit Contribution per kWh

• Credits below CBL

GPC Philosophy on RTP


Why is There a Need for RTP?

1. Product characteristics create risk2. Many customers have on-site

flexibility which can manage risk Expected

Ave ¢/KWH

Hours

Target Customers Load Shape

KW

Off Peak

Off Peak

On Peak

Target Customers Actual Load Shape

Target Customers Forecasted Load Shape

On peak and off peak prices* based upon forecasted load shape

On peak and off peak prices* based upon actual load shape

Hours

¢/KWH

TOU Prices

Scenarios

*Assume Actual Hourly Prices equal Forecasted Hourly Prices


Risk on Seller

100%, 100%

100%

100%0

•HUD

•CED

•TOU

•1 Part RTP

•2 Part RTP

•Curtailable EnergyLoad

Shape Risk on Seller

Cost Risk on Seller

•Flat Bill

•Flat Energy


Features of “Two-Part” RTP

Customer pays for a baseline level of usage (e.g., recent historical usage) at standard tariff prices. Customer is revenue neutral at baseline usage.

Differences in usage from the baseline (increases or decreases) are billed at RTP prices.

Demand response benefits the RTP customer, the utility, and all other customers.


Two-Part RTP Bill

Customer’s bills change from their “Standard” Bill only when they change their hourly loads from the “Baseline” load shape

RTPBill

=StandardBill

LoadHour

+ M.C.Hour

x


MWh

1 24

Actual

load

Customer “sells” load at high RTP prices

Customer “buys” load at low RTP prices

CBL

Hour of Day

Example of Incremental Energy Charges (Relative to Baseline)


Economy

Weather

Fuel Price

Unit Availability

Tie Lines

Wholesale Market

RTP RTP PricesPrices

Factors with Major Influence on RTP Prices


Typical RTP-DA Prices

*Hour at end of interval

HR* cent/kWh status

17 89.4200 A

18 49.5094 A

19 29.2998 A

20 8.2002 A

21 7.6772 A

22 5.2903 A

23 3.6407 A

24 3.2380 A

HR* cent/kWh status

01 3.1440 A

02 3.1151 A

03 2.9661 A

04 2.9329 A

05 2.9307 A

06 2.9384 A

07 2.9980 A

08 3.0449 A

HR* cent/kWh status

09 3.0531 A

10 3.6141 A

11 4.7617 A

12 5.2418 A

13 7.8890 A

14 39.1817 A

15 79.3005 A

16 109.7100 A


Portion of customers found to respond significantly to RTP prices: 60-75%

Range of flexibility parameters: .01 - .40 (Approximately equal to negative of own-price elasticity)

A short-period price spike of 10 to 20 times the typical price can yield load reductions of 10 to 20% (e.g., 150 MW from 1,000 MW of load)

Do Customers Respond to RTP?Summary of Findings


Typical Load Response

Increased Usage in All Hours

0:00 4:00 8:00 12:00 16:00 20:00 24:005

6

7

8

9

10

5

6

7

8

9

10

No Response in Low-Price Hours and Decreased Usage in High-Price Hours

(Peak Shavings)

0:00 4:00 8:00 12:00 16:00 20:00 24:00

Increased Usage In Low-Priced Hours and No Response in High-Price Hours(Hiding behind the Baseline Load)

0:00 4:00 8:00 12:00 16:00 20:00 24:00

5

6

7

8

9

10

Increased Usage in Low-Price HoursDecreased Usage in High-Price Hours

0:00 4:00 8:00 12:00 16:00 20:00 24:0056

7

8

9

10


Demand Profile

Tuesday

0

5000

10000

15000

20000

25000

30000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

KW

DE

MA

ND

0

2

4

6

8

10

12

CE

NT

S/K

WH

Cents/kWh Actual kW CBL kW


Thursday

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 240

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

KW

DE

MA

ND

CE

NT

S/K

WH

Actual kWCBL kWCents/kWh

Demand Profile


Distribution of RTP Price Elasticities SIC 20 Food Products

0.000

0.050

0.100

0.150

0.200

0.250

0.300

0.350

0.400

0.450

0.500

1 3 5 7 9 11

13

15

17

19

21

23

25

27

29

31

33

35

37

39

41

43

45

47

49

51

53

55

57


Distribution of RTP Price Elasticities Commercial Office Buildings

0.000

0.050

0.100

0.150

0.200

0.250

0.300

0.350

0.400

0.450

0.5001 3 5 7 9 11

13

15

17

19

21

23

25

27

29

31

33

35

37

39

41

43

45

47

49

51


Distribution of RTP Price Elasticities Schools and Universities

0.000

0.050

0.100

0.150

0.200

0.250

0.300

0.350

0.400

0.450

0.5001 4 7 10

13

16

19

22

25

28

31

34

37

40

43

46

49

52

55

58

61

64

67

70

73

76

79


Distribution of RTP Price Elasticities Supermarkets

0.000

0.050

0.100

0.150

0.200

0.250

0.300

0.350

0.400

0.450

0.5001 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59


0.60

0.70

0.80

0.90

1.00

1.10

1.20

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Hour

Nor

mal

ized

Loa

d

0

2

4

6

8

10

12

14

16

Loga

rithm

of

Pric

e (

$/M

W)

Load at highest prices

Highest prices

Reference Load

Load at moderate prices

Reference prices

Moderate prices

RTP-DA Prices and Load Response, by Price Day-type


Price/Load Response

5

57

414

323

4242

132

92

Days

0

50

100

150

200

250

300

350

400

450

Loa

d R

esp

onse

(M

W)

RTP Price Load Response

RTP-DARTP-DA


0.00

0.20

0.40

0.60

0.80

1.00

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Hour

No

rma

lize

d L

oa

d

0

4

8

12

16

20

Lo

gar

ith

m o

f P

(in

$/M

Wh

)

Load at highest prices

Highest prices

Reference Load

Load at moderate prices

Reference prices

Moderate prices

RTP-HA Prices and Load Response, by Price Day-type


Price/Load Response

RTP-HARTP-HA

189168

190

319

450

232

Days

0

100

200

300

400

500

Loa

d R

esp

onse

(M

W)

RTP Price Load Response


Predicted Load Curve Impact

Hour

Hour

mW

0200400600800

100012001400

1 3 5 7 9 11 13 15 17 19 21 23

Original

New


Load Changes in All Hours

Price Change Hour 17 Only

Original Load

New Load

750

800

850

900

950

1000

1 3 5 7 9 11 13 15 17 19 21 23


Look at Price Responsive Customers

Average Load

Price Response

497 mW

347 mWNote: Price Response on High Price Days for 24 Customers

$0.20

$0.047

Load Drops 150 mW Morning to Afternoon of High Priced Day

250

300

350

400

450

500

550

1 3 5 7 9 11 13 15 17 19 21 23


Implications for Demand-Side Strategies

market prices sensitive to demand at high demand levels (elasticity 12)

$70, Retail

Retail Demand

MWs

$400

$200

Supply

Demand response – e.g., RTP – an essential market feature


Expected Load Changes

(Application load response model to California)*

Price ($/kWh) % Load Change$0.25 2.0%$0.35 3.7%$0.45 5.1%$0.55 6.4%$0.65 7.6%$0.75 8.6%$0.85 9.6%$0.95 10.5%$1.05 11.3%$1.15 12.0%$1.25 12.8%$1.35 13.4%$1.45 14.1%

Note: The reference price is $.15/kWh

Expected Load Changes at Various RTP Price Levels (Percent change)


What Customers Like About RTP

Access to competitive market prices Low expected energy cost Certainty of cost of consumption changes


What Do Customers Think?

This chemical company’s threshold is around the 6¢/kWh range. At times they will “buy through” some higher priced hours when they have to meet a customer’s order. They love the rate.

This mining company responded heavily to pricing in July. When the price were over 20¢/kWh, they would curtail below their threshold by a couple of mW.


What Do Customers Think?

This wood product company break point is around 3.0 cents per kWh. At 3.0 cents or lower, they maximize RTP purchases. At 8.0 cents per kWh, they maximize self generation.

This aggressive commercial facilities manager cuts back florescent fixtures by 1/3, adjusts thermostat, reduces chillers in the afternoon, turns down water heating, and allows the temperature to float on chilled water loop.


Why Offer RTP?

Lowest priced product based upon sound risk principles

Provides a connection between wholesale and retail energy markets

— Retail prices reflect wholesale costs— Demand response to high prices provides

needed capacity relief and reduces wholesale prices

— Mitigates market power


Why Two-Part RTP Works

Fundamentally sound market design. Two-part RTP has the same basic structure common to all other commodity markets (future/forward contracts and settlement at spot)

Incremental/decremental load priced at RTP induces efficient consumption/curtailment

The CBL priced at standard tariff provides customer a hedge against price risk without sacrificing efficiency

Voluntary and simple


Wholesale Markets Employ Vehicles to Mitigate Risks

Few can tolerate the level of price risk; forwards and options essential to electric markets

PRIC

ES

DAYS

$140

$ 30

$ 18

SPOT

FORWARD


Price Protection Products

Allows RTP customer to manage RTP price risk and volatility

Financial hedge contracts that lock in a price for a specific time period


CAPS, Collars, Indexes, and Contracts for Differences (CfD’s)

Customer still benefits by reducing load in response to high RTP prices in specific hours

Price Protection Products


Time Period July, All Hours

Contracted kW 1,000

# Hours 744

Contracted kWh 744,000

CfD Price 6.0 Cents/kWh

CfD Example:


Settlement for High Average Price: = (10.0-6.0) * 744,000 = $29,760. GPC pays Customer $29,760.

-OR-

Settlement for Low Average Price: = (4.0-6.0) * 744,000 = ($14,880). Customer pays GPC $14,880.

CfD Example:


Real Time Pricing Summary Benefits Coupled with PPP

Participants— Provides industrial and commercial customers the

cost-based pricing they want and gives them more control over their bill and lower unit costs

Non-participants— Protects them from revenue erosion and benefits

them by allowing Utility to operate more efficiently at a lower cost to all ratepayers


Utility Company— Provides more efficient pricing and a more

competitive position State

— Attracts new business and rewards business expansion, resulting in increased employment and tax revenues

Real Time Pricing Summary Benefits Coupled with PPP


Portfolio Pricing on Risk Principles:Expected Customer Cost vs. Price Risk Profile

Risk to Buyer

ExpectedCost

toBuyer

FIP

RTP-DA

VIP RTP w/ Adjustable CBL

RTP w/ PPP

RTP-HA

PLL

dynamic pricing, tariffs, and price responsive demand programs real time pricing at georgia power...

Documents

christensenassociates

rtp customers

twopart rtp

price responsive slide

portfolio pricing slide

christensenassociates

rtp product

mwh slide