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Copyright
©

2011
The Brattle Group, Inc.

www.brattle.com

WILL THE SMART GRID
ENABLE DYNAMIC PRICING?




Ahmad Faruqui, Ph. D.


NE Electric Restructuring Roundtable

Boston, Massachusetts

October 28, 2011

The views expressed in this
presentation
are strictly
mine and
not necessarily
of
The Brattle Group, Inc
.

The Smart Grid is rolling out at a rapid clip


No where is this more evident than in the
rollout of smart meters, with 22 million
deployed already


The number is projected to grow three
-
fold in
five years and by 2025, all 135 million
residential customers may be on smart meters


But how many will be on dynamic pricing?


Currently, only 1 percent are on time
-
based
pricing

The Brattle Group

Has the tide turned?


In a recent survey, 7 state commissions indicated
that they support dynamic pricing


50% of the AMI business cases being submitted
by utilities reference dynamic pricing


Dynamic pricing was one of the Top 5 issues cited
in a survey of utility executives


Brattle’s

poll of 50 energy experts indicates that
dynamic pricing may be adopted by 20 percent of
customers by 2020

The Brattle Group

What has made a difference?


The inexorable roll out of dynamic pricing
experiments


About two dozen have been carried out over
the past decade across three continents,
involving more than 100,000 customers and
109 tests

The Brattle Group

When filtered by rate and technology, the
impacts yield a “Manhattan Skyline”


Peak Reductions by Rate and Technology
Pricing Pilot
Peak Reduction
1
109
0%
10%
20%
30%
40%
50%
60%
TOU
TOU w/ Tech
PTR
PTR w/ Tech
CPP
CPP w/ Tech
RTP
RTP w/ Tech
The Brattle Group

The best
-
designed pilots allow us to infer the “Arc of
Price Responsiveness” with much clarity

The Brattle Group

Pilot Results by Peak to Off-Peak Ratio
Price-Only Results
Peak to Off-Peak Ratio
Peak Reduction
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
0%
5%
10%
15%
20%
25%
30%
35%
40%
Best-Fit Curve
In most cases, the inclusion of enabling
technology boosts price responsiveness

The Brattle Group

Pilot Results by Peak to Off-Peak Ratio
Results with Enabling Technology
Peak to Off-Peak Ratio
Peak Reduction
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
0%
5%
10%
15%
20%
25%
30%
35%
40%
Technology Curve
Price-Only Curve
Low income customers are likely to benefit from
dynamic pricing, even if they don’t respond


-10%
0%
10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
All Residential Sample
-10%
0%
10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Low Income Sample
Bill increases

Bill decreases (savings)

The Brattle Group

And low income customers do respond

22%
50%
66%
66%
71%
84%
85%
100%
100%
100%
0%
20%
40%
60%
80%
100%
120%
California
SPP: CARE
vs. Average
PG&E
SmartRate
2009: CARE
vs. Average
PG&E
SmartRate
2008: CARE
vs. Average
CL&P's
PWEP
Program
(PTP high):
Hardship vs.
Average
Hydro
Quebec:
Low Income
vs. Average
Residential
California
SPP: Low
Income vs.
Average
Pepco DC
(price only):
Low Income
vs. Average
Residential
BGE 2008:
Known Low
Income vs.
Known
Average
Customer
CL&P's
PWEP
Program:
Known Low
Income vs.
Known
Average
Customer
Consumers
Energy: Low
Income vs.
Average
Residential
Peak Reduction
Average customer response
Note: For the PepcoDC pilot, the average residential response excludes
low income customers that qualify for the RAD program
The Brattle Group

References


The Brattle Group, “
DRex
: International Database of Dynamic
Pricing Experimental Results,” July 2011.


Faruqui, Ahmad and Jenny Palmer, “Dynamic Pricing and its
Discontents,”
Regulation
, Fall 2011.


Faruqui, Ahmad, Ryan Hledik, Armando Levy and Alan Madian,
“Smart pricing, smart charging,”
Public Utilities Fortnightly
,
October 2011.


Faruqui
, Ahmad and Sanem Sergici, “Dynamic pricing of
electricity in the mid
-
Atlantic region: econometric results from
the Baltimore gas and electric company experiment,”
Journal of
Regulatory Economics
, Volume 40: Number 1, August 2011.


Faruqui, Ahmad and Sanem Sergici, “Household response to
dynamic pricing of electricity

a survey of 15 experiments,”
Journal of Regulatory Economics
(2010), 38:193
-
225.


The Brattle Group

Biography


Ahmad Faruqui is

an expert on

matters involving the interaction of customers with the

smart grid.
He

has assisted utilities and state and federal commissions

assess the economics of dynamic
pricing, demand response, advanced metering infrastructure, and energy efficiency. He pioneered
the use of experimentation in understanding customer behavior and his early work on time
-
of
-
use
pricing experiments is cited in Professor Bonbright’s textbook on public utility rates.


He assisted

the U.S. Federal Energy Regulatory Commission (FERC) in preparing a National Action
Plan for Demand Response, which built on work he did earlier

that helped quantify, on a

state
-
by
-
state basis, the

potential for demand response

in the US.

In prior years, he

has assisted the Electric
Power Research Institute in quantifying the potential for energy efficiency

in the US and the Edison
Electric Institute in quantifying the benefits of dynamic pricing.


He has also worked with ISOs and
RTOs in the Midwest, New England,

New York and PJM.




He has appeared before commissions and legislative bodies in Arkansas, California, Colorado,
Delaware, the District of Columbia, Illinois, Indiana, Kansas, Maryland, Minnesota and Ontario,
Canada. He has also addressed several meetings of state and provincial commissioners in the US
and Canada and been a featured speaker at conferences in Brazil, France,

Ireland, Saudi Arabia and
the United Kingdom.


The author of four books and more than a hundred papers on energy policy, Faruqui holds a
doctoral degree in economics from the University of California at Davis and

bachelors and
masters

degrees from the University of Karachi, Pakistan.


The Brattle Group