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Seven FAQs about Time-Variant Pricing

Seven FAQs about Time-Variant Pricing. California Public Utilities Commission. Ahmad Faruqui, Ph.D. July 30, 2014. Q1: Does TVP induce demand response?. Because results vary widely across studies, some conclude that we have learned nothing about demand response.

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Seven FAQs about Time-Variant Pricing

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  1. Seven FAQs about Time-Variant Pricing California Public Utilities Commission Ahmad Faruqui, Ph.D. July 30, 2014

  2. Q1: Does TVP induce demand response? • Because results vary widely across studies, some conclude that we have learned nothing about demand response

  3. 60% of the tests have produced peak reductions of 10% or greater

  4. Grouping results by tariff design helps explain some of the variation in impacts

  5. Q2: Does demand response vary with the magnitude of the price signal? • Not only do customers respond, but the magnitude of their response varies with the price incentive • The higher the incentive, the greater their demand response • To study this relationship between price incentive and peak energy reduction, we have estimated the Arc of Price Responsiveness. • The Arc is based on 210 time-varying pricing treatments from around the world

  6. We plot demand response against the peak to off-peak price ratio Dynamic Pricing Impacts (price only) TOU Impacts (price only)

  7. Q3: Do enabling technologies boost demand response? Dynamic Pricing Impacts TOU Impacts

  8. Q4: Does demand response persist over time? • We observe that demand response has persisted in long-lived pilots • California, Washington, D.C., Oklahoma for 2 years • Maryland for 4 years • TOU programs have been in place for decades • The French tempo tariff goes back to 1965 • Arizona’s TOU rates go back to 1980

  9. Q5: Will TVP hurt low-income customers? • Nearly 80% of low income customers are paying more under flat rates

  10. Once they respond to the price signal, low income customers will save even more

  11. Q6: Is TVP likely to be a foreign concept to electric customers? • Without noticing it, most electric customers have been experiencing TVP in everyday purchases ranging from gasoline to groceries • TVP is the pricing design of choice for all capital-intensive industries such as airlines, hotels, rental cars, bridges, freeways and even parking spaces • Since 2009, tickets for San Francisco Giants baseball games have varied according to the value of the game and the practice has gone viral for all major sports around the globe

  12. Q7: Will TVP alienate customers and cause a backlash? • In Connecticut Light and Power’s Plan-it Wise pilot, post-pilot surveys and focus groups were carried out to examine how customers felt about their participation in the pilot • Residential customers who participated in the survey had an overall satisfaction rating of 5.1 out of a possible 6, with 92 percent saying they would participate again • Customers have consistently shown high levels of satisfaction with pilots at Consumers Energy, Baltimore Gas and Electric, Hydro One and California utilities

  13. Customers are not inconvenienced by TVP • In a recent survey of TOU customers by Hydro One in Canada, only 4 percent found the changes in their daily activities to be inconvenient • Most customers like TVP because its gives them an opportunity to save money, improve reliability and contribute to a better environment by making small adjustments in their energy consumption schedules • The myth of having to get up at 2 am to do your laundry is just that – a myth

  14. Presenter Information Ahmad Faruqui, ph.d. Principal│San Francisco Ahmad.Faruqui@brattle.com +1.415.217.1000 Dr. Ahmad Faruqui is a Principal with The Brattle Group who specializes in analyses and strategy relating to the customer. He has helped design, monitor and evaluate energy efficiency investments for a wide range of electric and gas utilities and testified before a dozen state and provincial commissions and legislative bodies. He has also worked for the Alberta Utilities Commission, Edison Foundation, the Edison Electric Institute, the Electric Power Research Institute, the Federal Energy Regulatory Commission, the Ontario Energy Board and the World Bank. His work has been cited in publications such as The Economist, The New York Times, and USA Today, and he has appeared on Fox News and National Public Radio. The author, co-author or editor of four books and more than 150 articles, he holds a Ph.D. in economics from The University of California at Davis and B.A. and M.A. degrees in economics from The University of Karachi. The views expressed in this presentation are strictly those of the presenter(s) and do not necessarily state or reflect the views of The Brattle Group, Inc.

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