American Public Power Association Business and Financial Conference Time of Use Pricing—The Fundamentals and Applications September 26, 2005 Portland, Oregon Consulting Consulting EES Presented by: Gary Saleba, President A registered professional engineering corporation with offices in Kirkland, WA; Bellingham, WA; Portland, OR; and Indio, CA Corporate Telephone (425) 889-2700 Facsimile (425) 889-2725 [email protected]
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American Public Power Association Business and Financial Conference Time of Use PricingThe Fundamentals and Applications September 26, 2005 Portland, Oregon.
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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
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