american public power association business and financial conference time of use pricingthe...

American Public Power Association

Business and Financial Conference

Time of Use Pricing—The Fundamentals and Applications

September 26, 2005Portland, Oregon

ConsultingEES ConsultingEES

Presented by:

Gary Saleba, President

A registered professional engineering corporation withoffices in Kirkland, WA; Bellingham, WA; Portland, OR; and Indio, CA

Corporate Telephone (425) 889-2700 Facsimile (425) [email protected]

Agenda

Introductions and Session Objectives

Time of Use Basics

Steps for Determining TOU Rates

Examples of TOU Rates

Observations on Impacts of TOU Rates

Structure of Tariffs in the Future

Summary/Conclusion

ConsultingEES ConsultingEES 1

Introductions and Session Objectives

Objectives of Session

Background on Speaker

Disclaimers


Time of Use Basics

Why Time Differentiate/the Rationale Higher principal of rate setting is fair, equitable and non-

discriminatory

Cost based rates are fair, equitable and non-discriminatory

Cost based rates must follow cost causation

Cost causation requires customer causing costs should also pay

Costs vary by time of use

Time variant costs should be allocated to users based on who uses what during time variant costing periods (i.e., time of use rates)



What are TOU Rates? Time differentiated rates

Vary with time of day (TOD) or time of use (TOU)

Multiple periods

– On-peak period

– Off-peak period

– Mid or shoulder period

4

Time of Use Basics (cont’d)

TOU Periods

Base Load

Mid

Peak Load

Time

Loa

d

TOU Mid Period

TOU Mid Period

TOU OffPeriod

TOU Off Period

TOU PeakPeriod

May be seasonally adjusted

– Winter

– Summer

– Monthly

May be unbundled

– Power supply component

– Transmission component

– Distribution component

Pricing based on the cost of electricity during a particular time block Rates are higher during the peak period and lower than the standard

rate during off-peak period because costs vary in same manner



Do the function’s cost vary by TOU?

Rewards customers for reducing consumption during high price periods/using more during off peak

Example for commercial customer:– Customer charge = $50/month

– Demand charge = $3/kW/month

– Energy charge = On-peak - 5¢/kWh / Off-peak – 2¢/kWh

TOU Rates are Not Real-Time Pricing Real-time pricing differs from TOU pricing in that real time pricing

is based on actual (as opposed to forecasted prices) Real-time pricing is more applicable to utilities that purchase a

significant portion of power supply at the market Utilities that generate their own power may use TOU pricing to

reduce costs




Relative Merits of Time of Use Rates Advantages

– Closely tracks costs

– Price signal Disadvantages

– Metering requirements

– Acceptance level by customers

– Cost differential between time periods may be small

– Administration/billing costs

– Impacts on utility net income




Cost Components

Demand Energy Customer Generation Yes Yes -- Transmission Yes -- -- Distribution Yes -- No General Yes Yes No Customer Accounting -- -- No Customer Service -- -- No Administrative and General (follows other costs) Yes Yes No

8

Which Type of Costs Vary with Time?

Steps for Determining TOU Rates

Summary Determination of time periods

Incorporate time periods into COSA analysis/allocation of costs to time periods

Allocate to customer classes

Calculate Unit costs by TOU period

Calculate TOU rates

Data needs


Determination of Time Periods Number of periods should be feasible to administer Hours and months having similar costs should be combined into like

groups/look to system lambda or LOLP– Statistical techniques– Wholesale power rates– “Eye-ball” technique– Other utilities– Market

The periods chosen should be broad enough to allow for minor shift in loads without major impacts on revenues

Incorporate Time Periods into COSA Functionalize—no change to standard methodology Classification—need time period cost classifiers, demand and energy Allocation—demand and energy allocation factors by time period


Steps for Determining TOU Rates (cont’d)

Classification of Plant and Expenses Timing of peak loads may impact

– Power supply investment and expenses

– Transmission investment

– Distribution investments

Power supply investment—look to causal variable (i.e., LOLP)

Power supply O&M—look to fuel costs

Determine if significant difference exists between time periods for transmission and distribution costs



Allocation of Rate Base and Revenue Requirement Take classified costs and allocate to each class of service utilize

TOU allocation factors

Results in time differentiated costs or revenue requirement by customer class

Calculate Unit Costs Determine time-differentiated unit costs for demand and energy

categories

Calculate TOU rates based upon unit costs

Reasons for deviation from unit costs



Data Requirements for TOU Analysis Load data needed for each class/rate schedule

– Energy (kWh) usage by period (on-peak, off-peak, shoulder)

– Demand (kW) usage by period (on-peak, off-peak, shoulder)

Is the data available?– Metering

– Load research

– Estimation

– Borrow

Accounting data– Power supply O&M costs by time period

– Power supply capital costs by time period (?)

– Transmission costs by time period (?)

– Distribution costs by time period (?)



Other Considerations Lack of data Price elasticity impacts Rate continuity Rate stability/revenue shifts Customer understanding



Examples of TOU Rates


Puget Sound Energy’s Time-of-Use Program Created in 2000 during the west coast energy crisis to provide

financial incentives for customers to shift electric consumption to off-peak times

Launched in may 2001--296,000 program participants shifted approximately 5 percent of their demand away from peak hours

Revised program rates in 2002 to reflect calmer wholesale electricity market; added a $1.00 monthly administration charge to cover incremental meter reading and data handling costs

94% of participants lost an average of 81 cents per month during the third quarter of 2002 compared to standard customers

After receiving the disappointing usage summaries in October 2002, approximately 26,000 customers withdrew from the program

TOU program was cancelled 10 months ahead of schedule so the company and interested parties could evaluate and possibly re-tool the program

15

Pacific Power’s Time-of-Use Programs Required as a result of Oregon’s electricity restructuring bill that

went into effect March 1, 2002 Time-of-use pricing plan requires the installation of a time-of-use

meter and a 12-month enrollment commitment PacifiCorp participants pay a $1.50 monthly surcharge and PGE

customers pay $1.00 per month to cover a portion of the additional cost for the time-of-use meter, including meter installation charges

The first year a customer selects the time-of-use pricing plan, if the total annual energy costs incurred under the time-of-use exceeds 10% over what costs would have been for the same period under standard rate, the net difference, guarantee payment, will be credited on the customer’s bill following the last month of the initial one-year commitment


Examples of TOU Rates (cont’d)

PGE’s Oregon Time-of-Use Programs PGE rate structure

– 3 tiers: on-peak, mid-peak and off-peak

– Mid-peak equals the standard service rate

– Ratio of on- to off-peak rates roughly 3-to-1 or near 5¢/kWh

– Customers pay a surcharge on top of inclining block rates for usage during on-peak hours and get a credit during off-peak hours

– On-peak surcharge is twice as high from April through October

Results of PGE study show that time-of-use households used 292 kWh less energy and saved $28 (or 5 percent) per year on average

Enrollment statistics as of March 2005

– 1,367 or 0.3% of Pacific Power’s 517,000 residential customers

– 1,998 or 0.3% of PGE’s 742,555 residential customers



Southern California Edison Time-of-Use Programs TOU programs are available for residential, commercial and

industrial customer classes Standard TOU and new critical peak pricing For the residential class, TOU pricing only occurs in the

generation component of the rate For the remaining rate schedules, both the distribution and

generation components have time related components

SCE – Residential 2 tiers: on-peak and off-peak for each session Ratio of on- to off-peak rates roughly 3-to-1 or near 20¢/kWh on

peak SCE charges an additional TOU meter charge of 0.09 cents

($2.70/month) per meter per day in addition to the standard customer charge, an increase of approximately 35%



Commercial and Industrial Programs Three tiers (on-peak, mid-peak and off-peak)

Both generation and distribution rates include time related components

Enrollment Statistics as of March 2005 4,127 or 0.1% of SCE’s 3,987,127 residential customers

21,836 or 3.4% of SCE’s 634,941 commercial & industrial customers




June through September

0

5

10

15

20

1 AM 10 AM 12 Noon 7 PM 9 PM 12 Midnight

Time of Day (Monday - Friday)

ce

nts

/kW

h

1.165¢/kWh

18.093¢/kWh

6.475¢/kWh

1.165¢/kWh

6.475¢/kWh

20

Source: Orange & Rockland, Residential TOU Rate (NY)

Example of TOU Delivery Charge


October through May

0

5

10

1 AM 10 AM 12 Noon 7 PM 9 PM 12 Midnight

Time of Day (Monday - Friday)

ce

nts

/kW

h

1.165¢/kWh 1.165¢/kWh

6.475¢/kWh


Source: Orange & Rockland, Residential TOU Rate (NY)


Example of TOU Delivery Charge

Observations on Impacts of TOU Rates

Success of TOU Programs Depends On: Price of power Design of the program

PSE Program Was Not Successful Price differential not significant enough Expensive to participate

Studies in CA Have Shown that: Residential customers will reduce peak load by approximately 5%

given on-peak TOU rates approximately double the standard rate Residential customers will reduce peak load by approximately 15%

given on-peak CPP rates approximately 5 times the standard rate

PSE’s Program also Reduced Peak Demands by Approximately 5%


Commercial TOU Customers Reduce Demands by 2% - 10% Due to TOU Rates

Industrial TOU Customers Reduce Demands by 4% - 25% Due to TOU Rates

Online Energy Management Systems are Likely to Increase the Demand Response


Observations on Impacts of TOU Rates (cont’d)

Structure of Tariffs in the Future

Continuing Price Volatility Under Deregulation as Supply/Demand Balance Vacillates

Price and Availability of Advanced Meters Better (AMR)

Increased Education of Customers/Up the Learning Curve

Results in More Complex Time Differentiated Tariffs

For the Future: Dynamic Pricing Critical peak pricing tariffs

Real-time pricing

Day ahead tariffs

Assumes Resources are Periodically Scarce and Deregulation Continues to Evolve


Summary/Conclusion

Grandpa Salebaisms

If it ain’t broke, don’t fix it

25ConsultingEES ConsultingEES

Summary/Conclusion (cont’d)

Grandpa Salebaisms


Never have time to do it right butalways have time to do it over


Summary/Conclusion (cont’d)

Grandpa Salebaisms


Never have time to do it right but alwayshave time to do it over

Better to be roughly right thanprecisely wrong


american public power association business and financial conference time of use pricingthe...

Documents

time of use rates

time of use time variant

time differentiated

time differentiated

time of use basics n

costs time of use basics

tou period

timedifferentiated unit