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Pricing: Static to Dynamic A Brief Framework Pacific Northwest Demand Response Program Rick Weston 5 December 2008 Outline Overview of pricing Survey of current mass market price structures Some questions Moving along the Continuum from Static to Dynamic Customers’ Perspective

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Pricing static to dynamic a brief framework l.jpg

Pricing: Static to DynamicA Brief Framework

Pacific Northwest Demand Response Program

Rick Weston

5 December 2008

Website: http://www.raponline.org


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Outline

  • Overview of pricing

  • Survey of current mass market price structures

  • Some questions


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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


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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.


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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


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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


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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.


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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


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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.


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Current Residential Rate Structures: Selected Utilities


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PacifiCorp

  • Residential Service, Oregon


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Idaho Power

  • Residential Service, Idaho


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Idaho Power

  • Res. CPP Service, Emmett Valley, Idaho


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Avista Power

  • Residential Service, Idaho


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Avista Power

  • Residential Service, Washington


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Tuscon Electric Power

  • Residential Service, Arizona


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Southern California Edison

  • Residential Service, California


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San Diego Gas and Electric

  • Residential Service, California


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Alliant

  • Residential Service, Iowa


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Xcel Energy

  • Residential Service, Minnesota


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Xcel Energy

  • Optional TOU Res. Service, Minnesota


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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


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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?


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    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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