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![Page 1: Retail Real-Time Pricing for Mass Market Customers: Experience, Perspectives, And Implications For A Post-2006 Policy Framework Bob Lieberman, Center for.](https://reader036.fdocuments.us/reader036/viewer/2022062714/56649d245503460f949fafcf/html5/thumbnails/1.jpg)
Retail Real-Time Pricing for Mass Market Customers:
Experience, Perspectives, And Implications For A Post-2006 Policy Framework
Bob Lieberman, Center for Neighborhood TechnologyKathryn Tholin, Community Energy Cooperative
Illinois Commerce Commission Electric Policy Committee
August 3, 2004
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
Presentation Outline
• The logic of Retail Real-Time Pricing (RRTP) for mass market customers
• Overview of Energy-Smart Pricing Plan
• Results from first year of program
• Perspectives on real-time pricing for mass market consumers
• Integrating demand and price response for all customers into a post-2006 policy framework
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
Searching For Market-based Benefits For Mass Market Customers
• Since 1999, ComEd and the Center for Neighborhood Technology have been engaged in a collaborative effort to identify innovative opportunities for mass market customers in a post-2006 era
• The most promising opportunity we have identified is known in the trade as “Retail Real-Time Pricing”
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
What Is Retail Real-Time Pricing?
• Working definition: – A retail pricing strategy where commodity prices vary
on an hourly basis to reflect the changing supply/demand balance in the wholesale markets
• Attributes– Customers are charged hourly market prices, reflecting
not only how much electricity is consumed, but when it is consumed
– Customers get information about price levels and changes, and are able to change their consumption behavior to reflect changing prices
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
Potential Benefits Of RRTP
• Reduction of peak demand– Fewer peaker plants/lower natural gas
consumption– Less stress on wires and transformers
• Reduced electricity costs for RRTP participants as they gain access to low-cost off-peak power
• Reduced electricity costs for everyone – As peak demand is reduced, average price for all
electricity is reduced
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
The Conventional Wisdom: Why Retail Real-Time Pricing For
Mass Market Customers Won’t Work
• The market is volatile and full of risk• There is no value for mass market consumers• The meters are too expensive • Mass market consumers won’t respond to
price signals, are unable to manage risk and volatility and need to be protected
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
Threshold Questions
• What is the risk? How volatile is the market?• How much does it cost to manage that risk?• What is the value? How large is the risk
premium? • How much do the meters really cost?• Will mass market customers respond to price
signals?
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
How Volatile Is The Market? Patterns Of Electricity Prices
• Electricity prices vary by hour, day and season in response to demand driven by weather and other factors
• 98% of the year wholesale market prices are low because demand is low and supply is abundant
• Power supplied during these hours is from power plants that are relatively inexpensive to run
• For several hundred hours per year (during hot summer weather on July and August weekday afternoons, and occasionally on very cold winter days) demand rises, causing prices to “spike.” Generators use natural-gas fueled peaking power plants to meet this spike in demand
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
Market Prices Are Driven By Hourly Demand
$0.00
$0.02
$0.04
$0.06
$0.08
$0.10
$0.12
1:00 AM 5:00 AM 9:00 AM 1:00 PM 5:00 PM 9:00 PM 1:00 AM
Monday, August 2Average Price
5¢/kWh
Sunday, August 1Average Price
3.5¢/kWh
10¢/kWh
2¢/kWh
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
Number of Hours in Price Bins
16,557
15,326
7,952
4,104
2,354
1,132
524
281
206
435
119
43
47
0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000
below $0.02
$0.02 - $0.03
$0.03 - $0.04
$0.04 - $0.05
$0.05 - $0.06
$0.06 - $0.07
$0.07 - $0.08
$0.08 - $0.09
$0.09 - $0.10
$0.10 - $0.20
$0.20 - $0.50
$0.50 - $1.00
above $1.00
Number of Hours
January 1, 1999 through August 6, 2004 Total Hours = 49,080
49,080 Hours Of Market Prices
89.5% of hours are below 5¢/kWh. Average Price is 2.51¢/kWh
98.5% of hours are below 10¢/kWh. Average Price is 2.86¢/kWh
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
When Does The Volatility Occur?
• Does it occur randomly?
• Or is there a pattern?
• Over the past five years, when you look at the 1.5% of the hours when the prices were above $0.10/kWh you consistently find:– Hot, July and August weekday afternoons
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
Electricity Prices Are Low Most of the Time[Historical Prices 1999 - 2004]
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Pe
rce
nt
of
Ho
urs
at
Giv
en
Pri
ce
65% of Hours: Average 2.03¢/kWh
33.5% of Hours: Average 4.45¢/kWh
1.5% of Hours:Over 10¢/kWh. Mostly Hot Summer Days
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
Is There Any Value?
• What would it be worth for mass market customers to take retail real-time prices?
• Is it worth the time and trouble?
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
A Rough Estimate Of The Value
Current Bundled vs. Simulated Real-Time Rates for a Typical Chicago Single-Family Home (Jaunuary 2001 through December 2002)
$0.00
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
Jan-01 Mar-01 May-01 Jul-01 Sep-01 Nov-01 Jan-02 Mar-02 May-02 Jul-02 Sep-02 Nov-02
Mo
nth
ly B
ill
Distribution and Fixed Costs ($844)
25% Savings From Real-Time Ratewith 10% summer load reduction ($1312)
Bundled Rate ($1,749)
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
Total Cost Comparisons and
Savings 1999 - 2002 1999 - 2002 Bundled Costs
1999 - 2002 Market Aggregation Costs
1999 - 2002 Market Aggregation Costs With 10% Decrease in Summer Load
% Savings No Load Reduction
% Savings With 10% Load Reduction
De Kalb $67,990,992 $56,289,105 $55,310,169 17.21% 18.65%
Elgin $203,151,140 $160,936,180 $156,638,455 20.78% 22.90%
Evanston $169,187,649 $135,164,481 $132,241,014 20.11% 21.84%
Kankakee $70,299,672 $55,240,974 $53,627,528 21.42% 23.72%
Park Forest $30,400,743 $25,037,783 $24,678,776 17.64% 18.82%
Woodstock $66,763,044 $47,740,109 $46,499,691 28.49% 30.35%
Aggregate $607,793,241 $480,408,632 $468,995,632 20.96% 22.84%
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
How Expensive Are The Meters?
• The meters in the current rate experiment – installed – are in the range of $200 per meter
• In the Municipal Aggregation study submitted to the General Assembly by the ICC two years ago, ICC staff estimated the cost of interval metering (necessary for retail real-time pricing) at $1.51/month
• Recent California PUC estimates for critical-peak pricing metering range from $1.05-2.65/month
• Italian utility Enel is replacing 27 million meters at a cost of approximately $85/meter (2 billion Euros total cost)
• Advanced metering costs continue to decline
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
The Logic
• If, in theory, giving mass market customers access to hourly market prices:– Produced potential savings around 20% - 25% a year per household and,– Price volatility was limited to a small and predictable number of hours per
year and,– The cost of the metering was only a small percentage of the possible
participant savings– The program could be structured so that the distribution utility was
indifferent, and– It created market-based incentives for demand reduction and price
responsiveness
• How could it be implemented?
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
Final Question
• Would mass market customers respond to price signals?
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
Theory And Practice
• ComEd and the Center for Neighborhood Technology join together in 1999 to test the proposition that—if one looked hard enough—there was possible value in restructuring for residential customers that held the distribution company harmless
• Started planning for a real-time pricing program in 2001
• ICC adopted the tariff in 2002 for a three-year period: 2003-2005
• Energy-Smart Pricing Plan begins in January, 2003
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Community Energy Cooperative
The Energy-Smart Pricing Plan
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
What Is ESPP?
• Residential market-based pricing plan
• Tools and information for participants to manage their energy use
• A program to explore opportunities and benefits of market-based prices for:– Individuals– Broader system/non-participants
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
Partner Roles
• ComEd– Provides rate and metering/billing system
• Community Energy Cooperative– Provides customer notification, education, energy
management tools
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
Rate Background
• Rate RHEP: distribution charge plus variable energy charge based on wholesale prices
• Models bundled rate/market rate differential in post-2006 environment
• Participation only through Community Energy Cooperative
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
Energy Pricing
• Day-ahead prices – posted after 5pm for the following day
• Each day ComEd obtains a day-ahead price for the wholesale market
• ComEd uses that price and the PJM West load shape to generate a set of 24 hourly prices
• The ICC approved this method as part of Rate HEP in 1999
• Cooperative provides limited hedging at $0.50/kwh
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
Program Components
• Interval recording meters• Prices available through web and phone• High price alerts via phone, e-mail• Energy management/price response tools
– Information about usage
– Instructions and tips on how to reduce usage during peak periods
– Ongoing energy efficiency information
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
Web Access to Detailed Energy Use Data
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
• Over 1,100 participants today – 100 households in control group for first year
– 40% have window air conditioners, 40% central air conditioning, 20% no air conditioning
– 56% Chicago, 44% suburban
– 10% Spanish-speaking households
– 83% single family
– 17% multifamily
Relevant Participants Characteristics
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
Well, What Happened?
• August 26, 2003, with the market price above $0.10 per kWh, people in the program changed the way they used energy….– One woman cooled only the kitchen and cooked
outdoors– Another turned off her air conditioner and went to
the movies– One man pre-cooled his house and turned off the
air conditioner in the late afternoon
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
One Member’s Response: Changing Thermostat Set Point In Response To Price Notification
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
1:00 AM 5:00 AM 9:00 AM 1:00 PM 5:00 PM 9:00 PM
kW
6/23/2003
6/24/2003
6/25/2003
56% Peak Demand Reduction Compared To Previous Day
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
Central Air Conditioner Users Respond To Price Alerts
0
0.5
1
1.5
2
2.5
3
August 26, 2003 August 27, 2003 August 28, 2003 August 29, 2003
kW
Control GroupParticipantsPrice Alert
Sent. 24% Reduction of Peak Demand Price Alert
Sent. 19% Reduction of Peak Demand
No Price Alert Sent. No Reduction of Peak Demand
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
Key Findings
1. Participants responded to peak period prices• Aggregate demand reduction was as high as 25% during
notification period
• Over half of all participants showed significant response to high price notifications
• Vast majority of participants showed some response
• Over 80% of participants modified their AC use
• Over 70% of participants reported modifying their clothes-washing patterns
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
Key Findings, Cont.
2. Participants liked the program• Found it easy to understand and manage
• 82% said program was “quick and easy”; 1% said “time consuming and difficult”
• Participants were happy with the financial results of the program—average savings were more than $12/month or 20%
• In addition to saving money, participants valued:• Bill control• Environmental impact• Greater understanding of energy use
• Retention rate of greater than 98% for second year.
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
Key Findings, Cont.
3. Lower income participants were disproportionately represented in the “high responder” group
4. Multifamily households as a group were more responsive to price than single family
5. Households with window air conditioners maintained their price-responsive behavior better across multiple high-priced hours
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
Contrary To Conventional Wisdom
• The Energy-Smart Pricing Plan shows:
– A simple, understandable RRTP program for mass market customers is possible
– Mass market consumers can and do respond to price signals
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
Policy Implications
• Small consumers need a way to participate in the market
• Demand and price response options for all sectors is important to long-run flexibility of system
• May be only way to get meaningful ‘choice’ to mass market
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
Policy Implications:Why Market-based Prices?
• Where there is a functioning wholesale market, it represents actual values of energy in the marketplace
• System will be objective and transparent: customers can understand and trust its basis
• Creates value for consumers when they assume price risk
• Participants get full benefit of off-peak low prices• Properly structured, it can provide significant cost
savings for consumers without reducing revenues for the distribution utility
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
Policy Implications:Benefits of Demand and Price Response
• It will reduce peak demand, mitigating market power• It will ensure that the long-run electricity prices in
Illinois are as low as they can be, both for participants and non-participants
• It will provide market-based incentives for energy efficiency, distributed generation, alternative energy and new innovative load-shifting technologies
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
Policy Implications, cont.
• Given what we have all learned since 1997, we need to build extensive demand and price response mechanisms directly and explicitly into the post-2006 design
• It works for commercial and industrial customers• It can be made to work for residential customers• It has benefits for participants and the broader system
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Community Energy Cooperative at the Center for
Neighborhood Technology2125 West North Avenue, Chicago, IL •
www.energycooperative.org
For Further Information
• This presentation is available at:– www.energycooperative.org
• Bob Lieberman– [email protected]
• Kathryn Tholin– [email protected]