by Meir Shargal and Patti Harper-Slaboszewicz, Computer Sciences Corp.
Based on findings from the PowerCentsDC program and other pilots and programs, most customers who have tried dynamic pricing prefer it to standard pricing, including customers with low income.
The discussion has moved from if the industry should implement dynamic pricing to the best way to implement dynamic pricing. Too much emphasis, however, is being placed on which dynamic pricing option is best. The industry should focus instead on lowering barriers to participation, educating customers to help them be successful on new pricing plans, and looking at ways to improve response without inconveniencing customers.
At first, an opt-in program might seem best from a customer perspective, but opting out is superior from a customer perspective. Requiring customers to enroll presents a barrier that some customers never get past, even if they would benefit from dynamic pricing. Most customers have found it easier than expected to reduce energy use during demand response events, and a high percentage saved money on their bills.
For example, more than 91 percent of PowerCentsDC customers on critical-peak rebate or critical-peak pricing saved money compared with standard pricing.
An opt-out approach allows customers who strongly prefer standard pricing to move back to their familiar pricing plan, and by default it removes the barrier for other customers. If the dynamic pricing plan first introduced is critical-peak rebate pricing but otherwise is the same as the standard pricing plan, it is not necessary to allow customers to opt out, but doing so might give a small percentage of customers the satisfaction of avoiding a new fangled pricing plan. An opt-out approach is expected to result in more customers’ active participation in reducing energy use during demand response events, especially if customers see key information on their bills and utility Web portals. Computer Sciences Corp. (CSC) recommends showing customers on their bills how much energy their households reduced during demand response events along with their savings. The Web portal should show more detailed information and provide it more quickly, allowing customers to review their savings the day after each event.
Longest Journey Begins With First Step
As far as what the best dynamic pricing plan is, it’s more important to pick one and support it well rather than worry about which is best. Introducing dynamic pricing requires a significant investment to replace or upgrade important software systems, as well changing and creating business processes to adapt to offering electric service to dynamic pricing customers. It is anticipated that after utilities successfully offer one dynamic pricing plan, utilities generally will entertain offering another time-based pricing plan. Dynamic pricing introduces changes for customers as well: learning about critical-peak events and how to reduce energy use during events, setting preferences for event notification, and understanding new bill formats and how to navigate an enhanced Web portal. Once customers become accustomed to one dynamic pricing plan, they will be in a better position to select among multiple plan offerings.
Sun Good for Cucumbers, Rain for Rice
Some utilities have started with dynamic pricing and others with time-of-use pricing, but eventually, utilities will offer various pricing plans. Arguing about which is best will be as useful as deciding which smart phone is best; no ideal time-based rate will appeal to all customers just as no consensus on the best smart phone exists. Some customers will be drawn to critical-peak rebate pricing because there is no risk. If customers don’t succeed in earning rebates, their bills never will be higher than the standard rate. Critical-peak pricing (without a time-of-use underlying rate) might appeal to customers with large homes and who use a significant amount of energy for air conditioning; they might be willing to reduce energy use for a limited number of critical-peak days–but not every nonholiday weekday. An alternative time-of-use rate with a short peak period of only three hours has been well received by customers of Arizona Public Service and Salt River Project.
You Have to Earn Respect
As utilities roll out smart metering and dynamic pricing, many seek to change their interactions with customers. Utilities recognize that a customer education plan is essential to build a partnership with customers. Developing and implementing good tools is a first step, but customers will need education to learn how to use the tools, potential customer benefits, and what they need to do to be successful. Most customers equate success to paying less on the new pricing plan than on their former pricing plan. For others it might be more complex, a combination of not paying more coupled with environmental benefits or competing with similar customers on “How low can we go?” during events. The industry is making progress on how best to provide information to allow customers to gauge their success, remembering that most customers understand little regarding how their energy use and spending compares with similar customers. Customers generally understand time and money and have not expressed eagerness to learn about kilowatt-hours and kilowatts. The industry should analyze energy-usage patterns for customers and present the results in terms that interest customers–time and money–rather than anticipating customers will study load-profile data.
Smooth Seas do not Make Skillful Sailors
Legacy industry systems, practices and processes were not created in a demand response world.
Most industry innovation has been directed toward rolling out smart metering, revamping back offices and rethinking the purpose of utility Web portals.
It’s time to address going beyond meters into homes.
A growing number of new and mature startups are focusing on how best to move forward, and many pilots are in the market. Some common issues that these new pilots address include:
- Improving prediction of what actual load can be tolerably shed,
- Improving ability to validate the load shed vs. target in real time, and
- Working around pre-programmed response to adapt to the specific situation on the day of the event.
Best Way to Predict Future–Create It
To provide widely adopted, valuable, residential demand response programs, the industry is adopting a more holistic view of demand response, beginning and ending with customer partnerships. As with any new venture, there might be rough spots–witnessed within the past year. As a result, utilities are walking before they run and working to earn customer respect and trust.
Meir Shargal is part of the leadership team of the CSC Global Utility team. He is responsible for growing the practice and delivering successful projects for utility clients. Reach him at email@example.com.
Patti Harper-Slaboszewicz is part of the smart grid practice at CSC/Utilities. She is a consulting and management professional with more than 20 years experience in utilities and consulting. Reach her at pharper firstname.lastname@example.org.
Past EL&P Issues