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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) 889-2725saleba@eesconsulting.com
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
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Introductions and Session Objectives
Objectives of Session
Background on Speaker
Disclaimers
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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)
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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
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Time of Use Basics (cont’d)
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
Time of Use Basics (cont’d)
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Time of Use Basics (cont’d)
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
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Time of Use Basics (cont’d)
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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
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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
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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
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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
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Steps for Determining TOU Rates (cont’d)
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
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Steps for Determining TOU Rates (cont’d)
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 (?)
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Steps for Determining TOU Rates (cont’d)
Other Considerations Lack of data Price elasticity impacts Rate continuity Rate stability/revenue shifts Customer understanding
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Steps for Determining TOU Rates (cont’d)
Examples of TOU Rates
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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
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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
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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
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Examples of TOU Rates (cont’d)
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%
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Examples of TOU Rates (cont’d)
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
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Examples of TOU Rates (cont’d)
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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
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Source: Orange & Rockland, Residential TOU Rate (NY)
Example of TOU Delivery Charge
Examples of TOU Rates (cont’d)
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
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Source: Orange & Rockland, Residential TOU Rate (NY)
Examples of TOU Rates (cont’d)
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%
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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
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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
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Summary/Conclusion
Grandpa Salebaisms
If it ain’t broke, don’t fix it
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Summary/Conclusion (cont’d)
Grandpa Salebaisms
If it ain’t broke, don’t fix it
Never have time to do it right butalways have time to do it over
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Summary/Conclusion (cont’d)
Grandpa Salebaisms
If it ain’t broke, don’t fix it
Never have time to do it right but alwayshave time to do it over
Better to be roughly right thanprecisely wrong
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