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Dynamic Pricing and Low-Income Customers

Correcting misconceptions about load-management programs.

Fortnightly Magazine - November 2010

Pacific Gas & Electric Company (PG&E) is rolling out in northern and central California; and California’s widely cited Statewide Pricing Pilot, which ran from 2003 through 2005.

The results from each pilot or program are presented below. Note that these programs don’t share a uniform definition of low income.

BGE Smart Energy Pricing (SEP) Pilot–Maryland : BGE conducted a Smart Energy Pricing (SEP) pilot program during the summer of 2008. 3 In 2008, the SEP pilot included 1,375 residential customers of which 1,021 customers were placed on dynamic pricing rates and 354 customers formed a control group that stayed on their current rates. BGE also tested the impacts of two different technologies, the Energy Orb, and a switch for cycling air conditioners, in conjunction with the dynamic-pricing options.

The pilot tested three dynamic-pricing structures: a dynamic peak-pricing (DPP) tariff, a low peak time rebate (PTRL), and a high peak time rebate (PTRH). The DPP rate consisted of a critical peak rate of $1.30 per kWh, peak rate of $0.14 per kWh, and an off-peak rate of $0.09 per kWh. There were 12 critical days called during the pilot period, and the critical hours were between 2 p.m. and 7 p.m.

With both the low and high PTR, customers remained on their existing rate of $0.15 per kWh. However, during critical peak hours from 2 p.m. to 7 p.m. on the 12 critical days, customers received a rebate of $1.16 per kWh (low) or $1.75 per kWh (high) for reducing their consumption below their baseline amount. 4

For the BGE analysis, a customer with an income level less than $25,000 was defined to be a low-income customer, generally in line with the federal poverty threshold. This choice for the low-income threshold was based on the income question in the enrollment survey.

For the full sample of customers, the peak reductions varied across programs and enabling technologies. In the absence of enabling technologies, the peak reduction was 18 to 21 percent. With the Energy Orb, the peak reduction ranged from 23 to 27 percent. With both the Energy Orb and a switch on the central air conditioner, the peak reduction ranged from 28 to 33 percent. As expected, enabling technologies resulted in increased price response.

Within the subset of customers with known income status (1,007 of the 1,375), the paper defined two groups: low-income, which had a self-reported income of under $25,000; and high-income, with a self-reported income of over $75,000.

The results show that a customer’s income status didn’t have a measurable effect on price responsiveness. In other words, the price responsiveness of low-income customers wasn’t statistically different from that of higher income customers.

CL&P Plan-it Wise Energy Pilot–Connecticut : CL&P conducted its Plan-it Wise Energy Pilot in the summer of 2009. The pilot included 1,251 residential customers, of whom 1,114 customers were placed on dynamic pricing rates and 137 customers formed a control group that stayed on their current rate.

Plan-it Wise tested three different rate structures (see Figure 3) : time of use (TOU), peak time pricing (PTP), and