Impact of Dynamic Pricing on Customers:

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1 Impact of Dynamic Pricing on Customers: Power Smart Pricing Demonstrates the Value of Dynamic Pricing in Central and Southern Illinois Lawrence Kotewa Senior Engineer/Project Manager CNT Energy, Illinois, USA

2 Residential Real-Time Pricing Exists! The ongoing debates about the potential value to consumers from the Smart Grid has included a lot of rhetoric about the value of dynamic pricing rates Little of this discussion has focused on what we actually know from real life experiences However, since 2003, Illinois residential consumers have had a real-time pricing option

3 Our Definition of RTP Transparent energy rate that is unbundled from distribution rate and is a direct pass through of prices from ISO Not revenue neutral. Unhedged product where the risk premium is fully captured by the customer Designed to be a positive experience for customers, not a default rate intended to push customers to alternative suppliers

4 What We Have Learned About Residential RTP So Far? Four years ( ) of Energy-Smart Pricing Plan pilot program demonstrated Good demand response (15 to 20% cuts in peak demand) Increased energy efficiency Bill savings (~10%) and strong customer interest/satisfaction Value to a range of customer types Customers can survive an occasional bad year (2005) Illinois now exploring if residential RTP will Lower prices for everyone? Create meaningful customer choice? Develop a platform for technological innovation to encourage conservation and efficiency?

5 How We Moved Past Pilot Phase In 2006 Illinois General Assembly unanimously passed legislation 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)

6 The Legislative Mandate: Setting the Stage The Commission may, after notice and hearing, approve the tariffor 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.

7 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

8 Current Programs Day Ahead Prices (MISO) Capacity priced monthly Day Of Prices (PJM) Capacity priced annually

9 Ameren Power Smart Pricing $2.25 per month fee to cover part of the incremental cost of metering and program administration 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 End of ,000 End of ,000

10 Marketing Power Smart Pricing

11 Educating Participants

12 Viewing Usage/Viewing Price

13 How PSP Participants Compare To All Ameren Customers From 2008 Power Smart Pricing Annual Report [Impact Evaluation by Summit Blue Consulting, Operations Report by CNT Energy] See:

14 What People Did 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

15 Monitoring Of Energy Prices 62% check prices online, 24% don't check prices 30% check every or most days, 30% check only after a high price alert 86% find alerts useful 20% thought there were more alerts then they expected, 45% were about what they expected

16 Long-Term Evidence of Price Response

17 Peak Day Reductions

18 Changes In Summer Loadshape

19 But Similar Non-Summer Loadshapes!

20 Conservation 6.0% reduction in kwh during summer months 0.9% reduction during spring/fall But 3.0% increase during winter months Yields an overall annual energy savings of 1.5% per year 4.1% participation in mail-in CFL kit offer compared to 0.7% for all other residential customers

21 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%)

22 2009 Prices not too cheap to meter, but getting close Price alert level set at 13, but highest summer price was 8 Mild weather too, hottest hour on a Sunday afternoon Even with June flat rate decrease, savings running in the 20 25% range

23 Impact of Unbundled Capacity

24 Lessons Learned There is a segment/community of consumers who will respond to price signals Technologies to manage energy use can be both soft (web, education) and hard (cycling switches) The challenges ahead Will regulatory climates tolerate exposing some customers to more risk in exchange for more potential rewards? How can we simplify unbundled energy and capacity into a clearer and fairer price signal? What is the size of the potential market? Can residential real-time pricing inform the debates on smart metering?

25 How Big Is The Market? Direct mail response rates have varied 1 to 2% response rates Direct cost per new customer in 2009 roughly $30 In contrast, PG&E offering a one year bill guarantee and a $50 Visa card in Bakersfield to get enrollment in CPP at a 7% response rate Conclusion: You can get customers interested but it takes time and money Spending more money on marketing also will mean a harder cost/benefit test for the programs benefits for non-participants (although current test also has to fully justify metering costs)

26 Getting Past the Smart Meter Debate Smart Meters + Dumb Rates = A wasted opportunity A meter just provides measured information The challenge is what will you do with that information? Smart Meters + Smart Rates + Smart Technologies = Value to Consumers, The Electric Grid and the Environment Will ARRA funded smart grid projects get this right?

27 For More Information Lawrence Kotewa Senior Engineer/Project Manager 773/ CNT Energy 2125 West North Avenue Chicago, IL