Peak Load Management Alliance

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A Dynamic PricingRegulatory Model
UHR Technologies

• Peak Load Management Alliance
• 2002 Fall Conference
• C. William Uhr, Jr.
• UHR Technologies L.P.
• October 8, 2002

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Presentation Overview

• Implications of PJM hourly prices
• The need for a regulatory paradigm shift
• Enabling and peak reducing technologies
• Barriers and benefits of dynamic pricing
• A straw man critical peak regulatory model
• A residential example of critical peak pricing

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Typical Energy Price Duration Curve
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1999 PJM Hourly Energy Prices
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2000 PJM Hourly Energy Prices
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2001 PJM Hourly Energy Prices
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PJM Average Energy Prices
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Why Regulated Dynamic Pricing?

• Improved asset utilization is key to reducing
  bills
• Most customers today are served by regulated
  utilities
• Demand response technologies have come of age
• Dynamic pricing in wires and commodity 2x
  savings
• Customers should have choice in pricing options
• Can serve as a catalyst to move competitive
  suppliers

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Enabling Technologies

• Interval meters
• Advance billing systems
• Automated load management controls
• Internet-based customer interface software

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Peak Reducing Technologies

• Energy management systems
• On-site clean backup generators
• Thermal storage
• Battery backup
• Fuel Cells

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Barriers to Dynamic Pricing

• Energy unregulated markets are immature
• No forward market for energy critical peak hours
• Customers require predictability in price to
  invest
• Regulated utilities earnings negatively impacted
• Perception customers dont care or will be hurt
• Need for instant gratification vs.
  crawl-walk-run

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Benefits of Dynamic Pricing

• Provides customers with robust pricing choices
• Drives customer-side load shaping technologies
• Improves delivery and supply asset utilization
• Reduces risk of short-term reliability problems
• Stimulates new load-side technology development
• Bottom line a more efficient electric system

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A Critical Peak Pricing Regulatory Model

• Utilities must offer critical peak (CP) pricing
• A CP option applies to all classes of customers
• Mass market CP pricing is class revenue neutral
• Pricing includes automatic annual adjustments
• Utility entitled to annual cost/revenue recovery
• Applies to standard offer commodity and wires

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Straw Man Commodity Methodology

• Create a proxy critical peak kWh marginal cost
• Adjust proxy marginal cost annually
• Critical peak hours based on a threshold
  load/price
• Revenue neutrality determines off-peak price/kWh
• Wholesale market used as reference for gain/loss
• Next year utility gets refund/recovery of
  gain/loss

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Straw Man Wires Methodology

• Determine marginal cost of wires capacity
• Adjust marginal cost annually
• Critical peak hours based on a threshold load
• Revenue neutrality determines off-peak price/kWh
• Typically 25 - 50 wires cost allocated to peak
• Standard wires rate used as reference for loss
• Next year utility gets refund/recovery of loss

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A Residential Example Energy UsageNo Electric
Space or Water Heating
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A Residential Example Bill SavingsNo Electric
Space or Water Heating
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Residential Market Drivers

• Ability to provide value beyond just payback
• Pricing options that provide savings
  predictability
• Marketers that provide turnkey packages
• Robust pricing that can produce large savings
• Dynamic pricing awareness campaign by utilities
• The availability of level payment billing plans

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Summary of Key Points

• Restructuring to date no critical peak pricing
  options
• Technology is far ahead of the regulatory process
• Regulated utilities must improve asset
  utilization
• Dynamic pricing will accelerate demand response
• Utilities, customers, and participants must all
  win
• Greatest barrier to dynamic pricing regulatory
  rules