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Dynamic Pricing and Low-Income Customers

Correcting misconceptions about load-management programs.

Fortnightly Magazine - November 2010

peak time rebate (PTR), each with two different price levels (low and high). A total of 10 critical event days were called over the course of the pilot for the PTR and the PTP rates. The TOU rate was in effect on weekdays from June through August.

The peak period was defined as between 2 p.m. and 5 p.m. for PTR and PTP, and between 12 noon to 7 p.m. for the TOU rate. The pilot also tested several different technologies including smart thermostats, A/C switches, Energy Orbs, and in-home displays in combination with the time-based rates.

Two different definitions of low-income customers were used for the purposes of this analysis. The first definition was based on the income question in the program enrollment survey, in which a customer was defined to be low income if annual income was less than $50,000. The second definition was based on a customer being certified by the state as a hardship customer.

The results were analyzed for the full sample and weather normalized. The PTP rate had the greatest impact, resulting in up to 29-percent peak reduction, while the TOU rates had the lowest impacts, between 2- and 4-percent peak reduction. As expected, the higher rates under the PTP and PTR led to greater peak impacts.

As with BGE, obtaining results for different income levels was more complicated. Only 552 out of 1,251 customers responded to the income question on the survey. However, within the subset of customers who did respond to the income question, the degree of price responsiveness for low-income customers was about the same as for the average customer.

Using the second definition of low income—hardship—the results were slightly different. In this case, results indicated that hardship customers responded slightly less than the average customer to the PTP rate. The incremental effect of the PTR rate was similar for hardship and non-hardship customers. Average customers responded to the high PTP rate with a 20-percent peak reduction, and hardship customers responded with an approximate 13-percent reduction. 5

Pepco PowerCentsDC Pilot– District of Columbia : Pepco DC administered its PowerCentsDC pilot from July 2008 to February 2009. The pilot involved nearly 900 treatment and 400 control-group customers. One unique feature of the PowerCentsDC program is that it actively recruited a group of low-income customers to understand their responsiveness to dynamic pricing. All program participants randomly were selected and then asked to participate in the program.

Three rate designs were tested in the pilot: CPP, critical-peak rebate (CPR) (which is the same as PTR), and hourly pricing (HP). The critical-peak period was from 2 p.m. to 6 p.m. on weekdays. Customers with central air conditioners also were offered a smart thermostat. Customers who had Pepco’s residential aid discount (RAD) status were defined as low-income customers. Under the program design, low-income participants only could be placed on the CPR, not the CPP rate. According to Pepco’s PowerCents DC September 2010 report, low-income customers on the CPR were slightly less responsive than the higher-income customers. 6 The results indicate that low-income customers on the CPR exhibited