Program and Tariff Analysis: Dynamic Electricity Pricing and Demand Response

Vision

Options for encouraging price-responsive load include "real-time" pricing (RTP), critical peak pricing, and demand response (DR) programs that pay customers to curtail. This project compiles lessons learned on customer acceptance and price responsiveness, preferred program and tariff design, and implications for retail market development.

Research Questions

Case study of Niagara Mohawk's large customer day-ahead market tariff:

• How price-responsive are large customers?
• How do ISO-sponsored emergency DR programs interact with customer response to RTP?
• What actions and strategies do customers take to respond?
• Do customers hedge themselves from price volatility?

Analysis of regulatory experience integrating RTP into retail competition strategies in various states:

• What regulatory policy drivers and market contexts have shaped RTP?
• Has implementing RTP affected development of price-responsive load and competitive retail markets?

Methods

Niagara Mohawk study:

• Customer survey and interviews on characteristics, satisfaction, response strategies, choice of supplier, and preferences for hedging.
• Econometric demand modeling:
• Usage data and prices to estimate customers' elasticity of substitution.
• Customer characteristics and circumstances used as conditioning variables.

RTP Study in states with retail competition:

• Interviews with regulators and stakeholders implementing dynamic pricing tariffs.

Findings

• ISO DR programs complement RTP, providing measurable increases in Demand Response when events are called.
• Industrial customers responded more to emergency events than hourly prices.
• Most of Niagara Mohawk's customers are satisfied with RTP, but are somewhat disappointed with retail market offerings.
• Price response is modest: model forecasts ~100 MW of DR for 141 customers at $0.50/kWh.
• Half of customers said they could not curtail; but 30% of them participated in emergency DR programs.

Comparative Review of RTP and Default Service Market Price Tariffs

In a number of states with various stages of retail market competition, policymakers have implemented real-time pricing (RTP) or other dynamic pricing tariffs for large customers as part of the design of default service. This research develops a qualitative understanding of the regulatory process and customer experience with these recent shifts toward default-service RTP. Issues such as regulator and stakeholder goals for RTP, the relative merits of various RTP tariff designs, customer satisfaction, adaptation and coping strategies, demand response and wholesale market impacts will be explored. This research will provide insights to California policymakers involved in discussions about RTP and its relationship to proposed retail market structures for California (e.g. defining core and non-core customers with different service obligations by utilities) and inform policies to develop tariffs, technologies and programs focused on increasing customer price responsiveness.

The goal of this project is to perform research that summarizes experience with and lessons learned from dynamic pricing electricity tariffs and demand response (DR) programs to inform policy and technology programs in California and other states. The first phase of this project, funded by the California Energy Commission (CEC)'s Public Interest Energy Research (PIER) program in 2003, examined large customer response to day-ahead market-based hourly pricing at Niagara Mohawk Power Corporation (NMPC) through extensive customer market research and economic demand models. Current research, funded through DRRC, continues to assess the effectiveness of DR technologies, tariffs and programs, and assists policymakers to make informed decisions on the design and implementation of such programs and tariffs by making results available in the public domain. This current work focuses on two major areas:

NMPC Real-Time Pricing (RTP) Case Study: Market-segment and customer-specific analysis

This project provides further analysis of NMPC customer response and adaptation to day-ahead hourly electricity pricing, expanding upon initial results from the Niagara Mohawk case study. This second phase of the project includes interviews with targeted NMPC customers to collect more detailed information on customers' coping and price response strategies and provide more disaggregated analysis of results. It also specifies alternative demand models to develop demand elasticity estimates that describe flexible response strategies (e.g., response that varies with prices and inter-day shifting) and that are based on additional billing and customer survey data.

Comparative Review of RTP and Default Service Market Price Tariffs

In a number of states with various stages of retail market competition, policymakers have implemented real-time pricing (RTP) or other dynamic pricing tariffs for large customers as part of the design of default service. This research develops a qualitative understanding of the regulatory process and customer experience with these recent shifts toward default-service RTP. Issues such as regulator and stakeholder goals for RTP, the relative merits of various RTP tariff designs, customer satisfaction, adaptation and coping strategies, demand response and wholesale market impacts will be explored. This research will provide insights to California policymakers involved in discussions about RTP and its relationship to proposed retail market structures for California (e.g. defining core and non-core customers with different service obligations by utilities) and inform policies to develop tariffs, technologies and programs focused on increasing customer price responsiveness.

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