American Public Power Association

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American Public Power Association

• Business and Financial ConferenceTime of Use
  PricingThe Fundamentals and ApplicationsSeptemb
  er 26, 2005Portland, Oregon

Presented by Gary Saleba, President A
registered professional engineering corporation
withoffices in Kirkland, WA Bellingham, WA
Portland, OR and Indio, CA Corporate Telephone
[phone] Facsimile (425)
889-2725 saleba_at_eesconsulting.com
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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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Time of Use Basics (contd)

• 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

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Time of Use Basics (contd)

• 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 functions cost vary by TOU?
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Time of Use Basics (contd)

• 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

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Time of Use Basics (contd)

• 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 (contd)

• Which Type of Costs Vary with Time?

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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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Steps for Determining TOU Rates (contd)

• 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
• Functionalizeno change to standard methodology
• Classificationneed time period cost classifiers,
  demand and energy
• Allocationdemand and energy allocation factors
  by time period

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Steps for Determining TOU Rates (contd)

• Classification of Plant and Expenses
• Timing of peak loads may impact
• Power supply investment and expenses
• Transmission investment
• Distribution investments
• Power supply investmentlook to causal variable
  (i.e., LOLP)
• Power supply OMlook 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 (contd)

• 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 (contd)

• 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 OM 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 (contd)

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

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Examples of TOU Rates

• Puget Sound Energys 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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Examples of TOU Rates (contd)

• Pacific Powers Time-of-Use Programs
• Required as a result of Oregons 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
  customers bill following the last month of the
  initial one-year commitment

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Examples of TOU Rates (contd)

• PGEs 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 Powers 517,000
  residential customers
• 1,998 or 0.3 of PGEs 742,555 residential
  customers

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Examples of TOU Rates (contd)

• 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 (contd)

• 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 SCEs 3,987,127 residential
  customers
• 21,836 or 3.4 of SCEs 634,941 commercial
  industrial customers

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Examples of TOU Rates (contd)

• Example of TOU Delivery Charge

Source Orange Rockland, Residential TOU Rate
(NY)
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Examples of TOU Rates (contd)

• Example of TOU Delivery Charge

Source Orange Rockland, Residential TOU Rate
(NY)
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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
• PSEs Program also Reduced Peak Demands by
  Approximately 5

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Observations on Impacts of TOU Rates (contd)

• 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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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 aint broke, dont fix it

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Summary/Conclusion (contd)

• Grandpa Salebaisms
• If it aint broke, dont fix it
• Never have time to do it right butalways have
  time to do it over

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Summary/Conclusion (contd)

• Grandpa Salebaisms
• If it aint broke, dont 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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