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Does Real-time Pricing Deliver Demand Response?. Charles Goldman Lawrence Berkeley National Laboratory [email protected] New England Restructuring Roundtable October 28, 2005. Policy Questions. What evidence is there that RTP delivers demand response (DR)?

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Does Real-time Pricing Deliver Demand Response?

Charles Goldman

Lawrence Berkeley National Laboratory

[email protected]

New England Restructuring Roundtable

October 28, 2005

policy questions
Policy Questions
  • What evidence is there that RTP delivers demand response (DR)?
  • What factors determine how much DR you get?
    • Customer enrollment (amount of load exposed to hourly varying prices)
    • Price response of enrolled customers
    • Relative roles of RTP and Emergency DR programs
  • How does default service RTP impact retail market development?
recent projects examining large customer rtp experience
Recent Projects Examining Large Customer RTP Experience
  • Optional RTP Tariffs: Utility Experience
    • Summarized 43 RTP programs offered by vertically integrated utilities in 2003
    • Analyzed trends in program participation & participant price response
  • RTP as Default Service:
    • Case studies of eight states where RTP is considered for large C/I customers in context of competition for retail load
    • Comparative analysis of market and regulatory context, RTP tariff design, and customer choices and response
  • Case Study of Niagara Mohawk RTP
    • In-depth study of customer choices and response to day-ahead hourly RTP tariff as default-service in a competitive retail environment
    • Interviewed and surveyed customers and estimated price response
optional rtp tariffs overview
Optional RTP Tariffs: Overview
  • RTP offered by:
    • Most investor-owned utilities (IOU) in Southeast and TVA
    • All IOU in Illinois and NY (statutory/ regulatory requirement)
    • Many mid-west utilities (First Energy, Cinergy, Xcel, KCPL)
    • All CA IOUs in 2003, but two programs since cancelled
  • RTP not offered by many utilities in:
    • The West
    • New England

Number of Utilities in Each State withRTP as Optional Tariff (2003)

RTP as Default Service: Regulatory & Market Context
  • Default RTP driven primarily by retail market restructuring goals – not DR
  • In New York, PSC first decided against and then recently in favor of statewide default service RTP for large C&I
rtp enrollment a snapshot
RTP Enrollment: A Snapshot
  • Enrollment in Default RTP:
    • 3-15% in PJM states
    • 25-34% in New York
  • Why the differences?
    • Alternative, fixed-price utility supply option (e.g., Duquesne)
    • Tariff design: day-ahead vs. after-the-fact price notice
    • Retail market development?
  • Enrollment in Optional RTP:
    • Anemic in all cases except Ga. Power
    • Offer inadequate savings opportunities or “too risky”
    • Lack of aggressive marketing by utility
niagara mohawk rtp customer migration patterns
Niagara Mohawk RTP: Customer Migration Patterns
  • “You can build it, but they may not (or may) stick around”
  • 17% of customers left NMPC for ESCO and never returned
  • 18% went back and forth
  • 37% switched later to ESCO and never returned
  • 28% of customers stayed on NMPC RTP
  • Load served by ESCO: 30% (2000) increased to 63% by 2004
  • Surprise: Load facing hourly prices (45-60% in 2004)
niagara mohawk rtp what customers told us
Load Response StrategiesNiagara Mohawk RTP: What Customers Told Us
  • ~30% of customers say they are unable to curtail load
  • ~70% can either forego or shift load or utilize onsite generation
  • Most customers report multiple barriers to price response;~15% respond without obstacles
niagara mohawk rtp what customers actually did
Niagara Mohawk RTP: What customers actually did?
  • Relative price responsiveness varies substantially across and within business sectors
  • Key Findings:
    • 18% of customers account for 75-80% of aggregate DR
    • 119 customers reduced their peak demand (500 MW) by ~10% (50 MW)
optional rtp tariffs maximum load reductions
Optional RTP Tariffs: Maximum Load Reductions

Public Service of Oklahoma

40 MW

  • Aggregate load reductions are modest for nearly all RTP programs (<1% of utility peak)
    • Only two utilities (Duke & Georgia Power) reported load reductions greater than 100 MW

Duke Power

200 MW

Com Ed (Rate RHEP)

Jersey Central Power & Light

60 MW

Florida Power & Light

Kansas CityPower & Light

Otter Tail Power(Option 1)

Pacific Gas & Electric

Georgia Power

750 MW

23 MW

Gulf Power








Maximum Load Reduction (% of Utility's Peak)

rtp as default service customers exposed to spot market prices
RTP as Default Service: Customers Exposed to Spot Market Prices
  • Potential market impact:
    • Niagara Mohawk – curtailments equivalent to about 0.6% of system peak load
    • New Jersey and Maryland – unknown
iso utility dr program performance
ISO/Utility DR Program Performance

DR Program Maximum Load Reductions

Percent of Total System (State or Utility) Peak

  • Actual performance tends to vary with program type
    • Emergency DR programs yield large reductions when high payments offered (e.g., $0.50/kWh)
    • Call option programs yield close to participants’ nominated amount
  • “Emergency DR” programs have thus far demonstrated larger load reductions than RTP (except for GA)
    • but not a direct substitute for RTP
conclusions rtp as a demand response strategy
Conclusions: RTP as a Demand Response Strategy
  • “You can build it but they may not come”
    • Low enrollment in most optional RTP programs
  • “Participation doesn’t guarantee price response”
    • Only 10 of 42 Optional RTP programs report load reductions
    • 18% of NMPC customers account for 75-80% of DR
  • “Even if they come, they may not stick around”
    • Expect that most customers will switch from Default RTP
    • But Default RTP can yield significant indirect market benefits
      • More retail choice customers willing to face hourly prices; but will they respond?
  • Program design, supporting infrastructure and utility incentives are keys to success
    • Default Service RTP: Day-ahead, hourly pricing balances retail market development and DR
    • Optional RTP: Georgia Power’s secrets to success (corporate commitment, aggressive marketing; customers can hedge; and CBL rules allow customers to generate bill savings)
    • Policymakers must make long-term commitment to build DR infrastructure (e.g.,customer info, tech. assistance, codes/standards, mkt. assessment)
implications rtp as a demand response strategy
Implications: RTP as a Demand Response Strategy
  • Retail choice states
    • Will state PUCs have the political will to establish RTP as default service and for which groups of customers?
    • Many customers willing to face hourly prices for some load under current market conditions (moderate price volatility, reasonably competitive retail market)
    • NMPC experience suggests moderate levels of demand response at high prices (10%; 50 MW)
    • Policymakers need more information on retailer contract types and response
  • Wholesale market design
    • Customers will enroll and respond to emergency DR programs (1-3% of system peak)
    • These DR programs are complementary with RTP
    • Linking Price Response to ISO Spot Markets
lbnl reports on rtp experience
LBNL Reports on RTP Experience

“A Survey of Utility Experience with Real Time Pricing”

G. Barbose, C. Goldman and B. Neenan. LBNL-54238, December 2004.

“Real Time Pricing as Default or Optional Service for C&I Customers: A Comparative Analysis of Eight Case Studies”

G. Barbose, C. Goldman, R. Bharvirkar, N. Hopper, M. Ting and B. Neenan. LBNL-57661, August 2005.

“Customer Strategies for Responding to Day-Ahead Market Hourly Electricity Pricing”

C. Goldman, N. Hopper R. Bharvirkar, B. Neenan, R. Boisvert, P. Cappers, D. Pratt, and K. Butkins. LBNL-57128. August 2005.

Reports available at:

two part real time pricing tariff how it works
Two-part Real-Time Pricing Tariff: How It Works

• Customer sees hourly prices for their marginal usage

  • Customer baseline (historic) usage (CBL) partially hedges customer against hourly price volatility
niagara mohawk rtp case study most customers don t check hourly prices
Niagara Mohawk RTP Case Study: Most Customers Don’t Check Hourly Prices
  • 70% of NMPC customers report never or rarely checking day-ahead hourly prices
  • 13% check when other signals – NYISO events or hot weather – suggest they are high
  • 17% consult prices routinely
response to day ahead prices nmpc aggregate price response curve

Average Peak to Off-Peak Price Ratio


Avg. Pk and Off-Pk Price ($/MWh)



Response to Day-Ahead Prices: NMPC Aggregate Price Response Curve

119 SC-3A customers would reduce their load by about 50 MW, or 11% of their peak demand (~500 MW), at high prices

price response of customers on utility rtp tariffs
Price Response of Customers on Utility RTP Tariffs
  • Georgia Power Company (Summer 1999 estimates)
    • 750 MW load reduction on an exceptionally high priced day
    • Load reduction = ~15% of participants’ combined billing demand
  • Niagara Mohawk Power Company (2004)
    • 50 MW reduction when peak prices = 5x off-peak prices
    • Load reduction = ~10% of participants’ combined billing demand
trends in day ahead market prices summer eastern new york
Trends in Day-Ahead Market Prices: Summer, Eastern New York

*On-Peak defined as 2pm-5pm on weekdays

  • Less price volatility since 2002 compared to summers of 2000 and 2001
  • Average hourly prices for summer period are relatively stable over 5 years
georgia power s secrets of success
Georgia Power’s Secrets of Success
  • Unique Georgia retail market underlies Georgia Power’s success with RTP
    • “New” C&I customers have a one-time choice of supplier and GPC is allowed to compete
    • High-level corporate commitment to RTP as a tool to compete for new load
  • Key tariff design and implementation details
    • Aggressive marketing for >10 yrs
    • High degree of ongoing customer support and (re-)training
    • Attractive hedging options
      • Two-part tariff design with CBL
      • Supplemental financial hedging products (caps, collars, contracts for differences, adjustable CBLs)
    • CBLrules have enabled many participants to obtain substantial bill savings, regardless of load response
georgia power rtp cbl rules enable bill savings
Georgia Power RTP: CBL Rules Enable Bill Savings
  • Key fact: On average, each customer on Georgia Power’s RTP rate has a CBL equal to 60% of its actual load
    • Across a sample of 85 accounts, the CBLs ranged from 0%-80% of the customer’s total load
  • How can this be?
    • Customers previously on Georgia Power’s Supplemental Energy rate (a curtailable rate) could receive an initial CBL equal to their Firm Load Level
    • New customers can receive a CBL below their projected load
    • All customers can expand their facilities or add load without adjusting their CBL upward
  • Hourly RTP prices for load above the CBL have historically averaged less than standard tariff rates
    • Marginal vs. Embedded Costs
utility and iso rto dr program enrollment 2004
Utility and ISO/RTO DR Program Enrollment (2004)
  • Most case study states have call option (or interruptible) and voluntary load reduction programs for large C&I