Residential Real-Time Pricing in Illinois:

The Policy Implications of Measuring and Evaluating the Impact of Dynamic Pricing

Anthony StarDirector of Policy and Evaluation

CNT Energy

Richard VoytasManager, Energy Efficiency and Demand Response

Ameren

National Town Meeting on Demand Response and Smart GridJuly 14, 2009

How We Got Residential RTP In Illinois

• In 2006 Illinois General Assembly unanimously passed legislation (Public Act 94-0977) that required the two large utilities in the state to offer real-time pricing programs as an optional service for residential customers

• Elsewhere the debate has been more contentious: – “California should step back from the rate-base oriented mode of

promoting a combination of supply side resources and advanced meters, even though those programs are most advantageous to utility shareholders, while giving short shrift to other peak-oriented programs.” (TURN, 2006)

• Illinois was different due to the success of the Energy-Smart Pricing Plan, a pilot program run from 2003 - 2006

The Legislative Mandate: Setting the Stage

“The Commission may, after notice and hearing, approve the tariff or tariffs, provided that the Commission finds that the potential for demand reductions will result in net economic benefits to all residential customers of the electric utility.

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.”

The Legislative Mandate:Proving Value

After four years, Commission will evaluate program to see if it is “resulting in net benefits to the residential customers of the electric utility.”

• Currently cost of program split between participants and residential non-participants. Bill savings should justify costs for participants, but...

• The challenge will likely be to evaluate benefits to non-participants, and how costs should be apportioned to recognize those benefits

The EM&V Challenge

• Meaningful levels of program cost associated with PSP

• Buy at market price/sell at market ~ theoretical TRC =1.0 absent program costs

• Profound implications for EM&V– Quantify increased system

reliability– Market power mitigation– Other

Current Programs

Key differences:PSP uses day ahead pricing, ComEd RRTP real-time pricingPSP capacity cost and charge rate varies monthly, ComEd RRTP capacity cost and charge rate is annualized

Ameren Power Smart Pricing

• $2.25 per month fee to cover part of the incremental cost of metering and program administration.

• All other residential customers pay a small charge, currently $0.07 per month

• Initial 12 month stay required• CNT Energy’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

• Participation Growing– End of 2007 500– End of 2008 3,000– July, 2009 5,500 +

Seewww.powersmartpricing.org

for more information

How Participants Respond

• 88% changed energy use after joining the program • 71% say participating is quick and easy

• Another 20% say its not difficult• Actions ranged from simple actions to reduce air

conditioning use to more extensive turning off lights, closing blinds, etc.

Changes in Air Conditioner Use• 70% raised temperature on most summer days• 21% only on hot or very hot days• But 9% rarely or never

2008 Bill Impacts

Including the estimated conservation effect of 186 kWh per customer would result in additional $18.60 savings (Savings percent would rise from 7.7% to 9.1%)

•2007 Savings approximately 13%•2009 Savings 30% to date (but likely to decline somewhat because of higher summer prices and Ameren’s flat rates went down in June)

Power Smart Pricing Consistent With Other Evidence of Price Response

From Summit Blue Evaluation of 2008 Power Smart Pricing Program:http://www.icc.illinois.gov/docket/files.aspx?no=06-0691&docId=136151

Approaches to Assessing Market Impacts

• How to apportion costs between participants and non-participants

– Current incremental metering costs don't reflect a future full AMI/Smart meter scenario

– Legislation is clear, look at • 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,

Potential Approaches• Summit Blue Reviewed Past Approaches:

– Summit Blue report for the International Energy Agency (IEA)

– Brattle report for Mid-Atlantic Demand Response Initiative (MADRI)

– Neenan Testimony in Illinois Commerce Commission (ICC) Docket 06-0691

– Power Systems Engineering Review Council (PSERC) open-source simulation models

• Have proposed a methodology that combines aspects of all four

• Stay tuned late 2010/ early 2011 as our Commission and stakeholders debate this

• Given size of program impacts will likely still be more modeled than actual

What We Know/Don't Know

• Dynamic pricing changes energy use and saves participants money

– Studies/Pilots only are showing nuances of differences

• Cutting peak demand might change energy markets

– Mostly theoretical, still need real evidence

• Potential scale of participation not known, customers don't know why they might want dynamic pricing

– We know that once they do, they like it

– But no one has gotten the value proposition quite right

For More Information

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

CNT Energy2125 West North Avenue

Chicago, IL 60647www.cntenergy.org

www.powersmartpricing.org