Residential Real-Time Pricing Is The Real-Deal

Anthony StarDirector of Policy and EvaluationTransforming the Electricity Market

Institute for Regulatory Policy Studies, Illinois State University May 10, 2007

The Problem

“…95% of all customers -- residential, small commercial, municipal – have absolutely no idea that the price of electricity varies by the hour and that the average of the hourly prices is likely to be significantly lower than the hedged retail price they have traditionally seen. And until they know that, they won’t realize that there is something in it directly for them; that investing in smart meters will give them access to lower cost electricity.”

– Testimony of ICC Commissioner Bob Lieberman to the Sub-committee on Energy and Air Quality, Committee on Energy and Commerce, U.S. House of Representatives. May 3, 2007.

Every Financial Planner Will Show You

http://www.calvert.com/images/new_balancingrisk.gif

Why Not Have the Same for Electric Rates?

Real-Time Pricing

Critical Peak Pricing

Time-of-Use Pricing

Flat Rate

Flat Bills

What’s Keeping Us From Having Those Options?

• To have an appropriate risk/reward scale requires something to differentiate supply and demand

• Supply: The emergence of wholesale markets allows for price discovery at the hourly level

• Demand: The individual load shape

now matters, not just total usage

The culprit for increasing peak demands:

The Meter was the Barrier

• Since before 1900, the best measuring device available

Inexpensive, long lasting but limited

What Will It Take To Create Pricing and Demand Response Options?

• Necessary, available today– Interval meters – Rate structures– Education for consumers to overcome behavior

created by a century of flat rates

• Nice to have, still limited availability– Smart Meters (e.g., 2 way communications)– Automation such as smart thermostats

A Brief and Simplified History of Innovative Pricing

• Time-of-use rates have been around for a while– Tend not to be very popular– Tend to require significant shifts in usage to achieve any savings

• Critical Peak Pricing adds a price signal at high demand times– Gulf Power launched in 2001– Extensively studied in California– Better focus on reducing peak demand, but similar limitations to time-

of-use rates

• Real-time Pricing connects consumers to wholesale markets– Initially offered to large C&I who had sophistication to follow prices

and curtail load when called upon– Community Energy Cooperative brought the concept to the residential

market in 2003 with the Energy-Smart Pricing Plan pilot program– New pilots starting up in Washington DC and elsewhere

What We Have Learned About Residential RTP So Far?

• We know that there are good results for– Demand Response– Energy Efficiency– Customer Interest/Satisfaction

• The next step is to understand how to transform markets. Can we– Lower prices– Create meaningful customer choice– Develop a platform for technological innovation to

encourage conservation and efficiency

Peak Demand Reductions from Residential RTP

-25%

-20%

-15%

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-5%

0%

5%

1:00 AM 7:00 AM 1:00 PM 7:00 PM

RTP without enabling technologyRTP with air conditioner cycling

Residential RTP Creates More Efficient Customers

• Evaluations show – Participants in real-time pricing cut summer usage

3 to 4 percent– Are more likely to buy Energy Star appliances– Feel more knowledgeable about their energy use

and feel more able to control it

Customers Like Real-Time Pricing

How Overall Program Experience Compared to Expectations

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Met expectations Did not meetexpectations

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Reducing Demand Doesn’t Strain Participants

Difficulty in Participating During August 2006 Heat Wave

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Extremelyeasy

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• RTP can be successfully implemented with relatively inexpensive incremental technology

• Useful, reliable pricing information is critical component

• Creates a real opportunity for energy awareness messages

• Consumer education is needed (want and use energy information relevant to their situation)

• High price notifications focus people’s attention• An automatic curtailment option such as an air

conditioner cycling switch or a smart thermostat produces added benefits

Conclusions from Pilot Program

What We’ve Learned:Overcoming Barriers

• The industry and residential customers are accustomed to flat rates and need to see beyond traditional regulatory paradigms to see how RTP can combine system benefits, customer choice and increased energy efficiency

• Education and notification are relatively inexpensive to implement

• Metering is getting less expensive

Legislators and Consumer Advocates Support Expansion of Residential RTP

“This just seems to make eminent sense to me-- if you're in a position where you can hold out in the heat of the day and run your air conditioner at night, you're gonna save some money.”– Representative William Black (R-Danville) during floor debate on

SB1705, April 4, 2006

“CUB views Ameren’s Tariff as a necessary and important step toward the development of substantial demand response that can provide the discipline lacking in the markets today.”– Testimony of Chris Thomas of the Citizens Utility Board in support of

Ameren’s rate filing in Docket 06-0691 (cons.), December 4, 2006

“The Grand Experiment”

“In examining economic benefits from demand reductions, the Commission shall, at a minimum, consider the following:

• improvements to system reliability and power quality,• reduction in wholesale market prices and price

volatility,• electric utility cost avoidance and reductions, • market power mitigation, and • other benefits of demand reductions,

but only to the extent that the effects of reduced demand can be demonstrated to lower the cost of electricity delivered to residential customers.”

[Public Act 94-0977, Sect 16-107]

Can Residential RTP Benefit Everyone?

Increasing demand response benefits non-participants more than participants!

[Adapted from CUB/City of Chicago Exhibit 3.6, Testimony of Bernie Neenan in ICC Docket 06-0617]

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RTP Today (-0.047 elasticity)

RTP w/some increase in response

(-0.096 elasticity)

RTP with automation

(-0.141 elasticity)

(Mil

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C&I Customer BenefitsOther Residential BenefitsRTP Participants

IntroducingPower Smart Pricing

Power Smart Pricing Details

• Rider PSP adds on to Ameren’s Rider RTP to create an optional program for residential customers.

• $2.25 per month fee to cover part of the cost of metering and program administration (compared to $5/month for just Rider RTP)

• 12 month stay required• Community Energy Cooperative’s role as Program

Administrator is to provide– Outreach/program marketing– Education tools for both efficiency and peak demand

management– High price notifications– Online tools– Research and evaluation

Prices So Far This Year

*AmerenIP BGS1 Prices

*

Technology Roll-out

• New website www.powersmartpricing.org launched in early March

• Nexus Energy Software developing new online functionality including– Energy audit– Sophisticated usage and price graphs and analysis

tools – Bill comparisons– Customized emails for high price notification

Enhanced Online Experience

Examples of Nexus web based software displays

What Could Come Next

Changing people’s behavior and awareness opens them up to interest in

• Innovative information communications systems

• New homes with enabling technology built in

• Grid friendly appliances

PriceLight: Engages Consumers

The home as a generator:Participate in the market

New Technology:Automates efficiency

For More Information

Anthony StarDirector of Policy and Evaluationastar@energycooperative.org773/269-4017

Community Energy Cooperative2125 West North AvenueChicago, IL 60647