#1A Survey of Residential Time- Of-Use (TOU) Rates PREPARED BY Ahmad Faruqui Ryan Hledik Sanem Sergici November 12, 2019 THE Brattle GROUP Copyright 2019 The Brattle Group, Inc.#2Overview of this Presentation Introduction This presentation surveys TOU rate offerings in North America and abroad -It is organized into two sections Section 1: A survey of current TOU rate offerings Section 2: Emerging trends in TOU rate design Methodology - - The survey draws upon data from three sources EIA-861 data (includes data such as # utilities offering TOU, # participants) Open El Utility Rates Database (includes TOU price ratio, # pricing periods) ⚫ Brattle's database of 60+ residential pricing pilots We have restricted the survey to US utilities The assessment of emerging trends is largely derived from Brattle's experience assisting utilities in ratemaking matters across North America and abroad Privileged and Confidential Prepared at the Request of Counsel brattle.com 1#3Key Findings The survey of residential TOU rates in the United States - - - - 14% of all US utilities offer a residential TOU rate; roughly half of IOUS offer one Where TOU is available, around 3% of customers are enrolled on average APS has the highest enrollment, with 51% of its residential customers on a TOU rate 74% of TOU rates have only two pricing periods 71% of TOU rates have a price ratio of at least 2-to-1 Half of TOU rates have a price differential of at least 10 cents/kWh Of the utilities offering TOU rates, roughly half offer more than one TOU option Emerging trends - To address solar PV integration challenges, new TOU rates are being introduced with a low mid-day price and a peak period that is delayed until later in the evening A few utilities have recently introduced TOU rates on a default (i.e., opt-out) basis for all residential customers Volumetric TOU rates are increasingly being proposed by environmental advocates to address grid cost recovery issues associated with rooftop PV adoption (as an alternative to fixed charges or demand charges) TOU rates continue to be piloted in North America and internationally; the pilots consistently find that on average customers shift consumption from peak periods to off-peak periods Privileged and Confidential Prepared at the Request of Counsel brattle.com 2#4Privileged and Confidential Prepared at the Request of Counsel The Survey of TOU Rates in the United States brattle.com 3#5Utilities Offering TOU Rates Share of Utilities Offering TOU (by Type of Utility) Offering TOU Rates Percent of Utilities 60% 45% 30% 15% 0% Cooperative Investor Owned Municipal Type of Ownership Retail Competition Yes INo Sources and notes: Brattle analysis of 2015 EIA-861 data. Political subdivisions, retail power marketers, and other utilities are excluded in the above chart due to sample sizes less than ten. Privileged and Confidential Prepared at the Request of Counsel Comments -14% of all utilities in the EIA- 861 database offer residential TOU rates -TOU rates are most commonly offered by IOUS; 48% of all IOUS offer a TOU rate -6% of all TOU rates include a demand charge (in addition to the time-varying volumetric charge) - Utilities in states with retail competition are less likely to offer TOU rates, though TOU rate offers are still fairly common among those utilities brattle.com 4#6Average Enrollment Share of Customers Enrolled in TOU Where Available Percent of Customers Enrolled on TOU Rates 4% 3% 2% Retail Competition Yes INo Comments -There are 2.2 million residential customers enrolled in TOU rates in the U.S. ―This amounts to 1.7% of all residential customers, and 3.4% of those customers for which a TOU is available 1% 0% Cooperative Investor Owned Type of Ownership Municipal Sources and notes: Brattle analysis of 2015 EIA-861 data. Political subdivisions, retail power marketers, and other utilities are excluded from the figure. Notably, Salt River Project, a large political subdivision, has more than 30% of its residential customers enrolled in a TOU rate. Privileged and Confidential Prepared at the Request of Counsel brattle.com 5#7Enrollment Distribution Across IOUS Share of IOU Customers Enrolled in TOU Where Available Percent of Utilities Offering TOU Rates 75% 60% 45% 30% 15% 0% 0-1% 1-2% 2-3% 3-4% 4-5% 5-6% 6-7% 7-8% %6-8 9-10% 10-11% 11-12% 12-13% 13-14% 14-15% 15%+ Enrollment Rate Retail Competition Yes I No Sources and notes: Brattle analysis of EIA-861 data. Data shown for IOUS only. The EIA data does not distinguish between enrollment in static TOU versus dynamic rates, so in some cases TOU participation may be slightly overstated. We have made adjustments for this where apparent (e.g., high PTR enrollment for BGE and Pepco). Privileged and Confidential Prepared at the Request of Counsel Comments 60% of IOUS offering TOU rates have enrollment rates of less than 1% A few utilities with high participation skew the average upward - Arizona Public Service, for instance, has over half of its residential customers enrolled in TOU rates Reasons for low enrollment at other utilities include no marketing of the TOU rate, inconvenient design (i.e., long peak period), and/or additional charges to cover cost of TOU meter (where smart metering has not been deployed) brattle.com 6#8Number of Pricing Periods. Number of Pricing Periods in TOU Rates Percent of TOU Rates 100% 80% 60% 40% Retail Competition Yes INo Comments -74% of all residential TOU rates have two periods -Only two rates in the sample include more than three periods 20% 0% 2 3+ TOU Pricing Periods Sources and notes: Brattle analysis of OpenEl Utility Rates Database. Data shown for IOUS only. Privileged and Confidential Prepared at the Request of Counsel brattle.com 7#9Percent of Two-Period TOU Rates 0% 10% 40% Price Ratio (two-period rates) 30% 20% Median = 2.7-to-1 Retail Competition Yes No 0-1 1-2 2-3 3-4 4-5 Prepared at the Request of Counsel .9-c 6-7 18-2 8-9- 8-9 9-10 10-11 11-12 Price Ratio in Two-Period Rates Price Differential in Two-Period Rates 12-13 SI-ZI 13-14- 14-15 14-13 15-16 16-17- 17-18 18-19- 19-20- 30% Percent of Two-Period TOU Rates 0% 10% 20% 40% Median = 10 cents/kWh Price Ratio Sources and notes: Brattle analysis of OpenEl Utility Rates Database. Data shown for IOUS only. - Price Differential (cents/kWh) Among two-period TOU rates, 71% have a price ratio of at least 2-to-1 Price ratios shown are for the volumetric charge only The strength of the price signal will be diluted to some degree by fixed charges and/or additional flat volumetric charges Privileged and Confidential brattle.com 8 45-50 50-55 Retail Competition Yes No#1030% Percent of Three-Period or More TOU Rates 0% 10% 20% 0-1 1-2 2-3 Privileged and Confidential Prepared at the Request of Counsel 40% 10-11 Price Ratio (3+ period rates) Median = 2.7-to-1 Price Ratio in 3+ Period Rates Price Differential in 3+ Period Rates 11-12 12-13 12 11 13-14 14-15 15-16 16.17 16-17 17-18 18-19 19-20 Retail Competition Yes No 30% Percent of Three-Period or More TOU Rates 0% 10% 20% 40% Median = 12 cents/kWh Price Ratio Sources and notes: Brattle analysis of OpenEl Utility Rates Database. Data shown for IOUS only. Price Differential (cents/kWh) -TOU rates with three periods have a similar price ratio as those with two periods -The figure shows the ratio between the peak price and the super off-peak price brattle.com 9 Retail Competition Yes No#11Percent of Piloted TOU Rates Duration of Peak Window Peak Period Duration in Recent TOU Pilots 40% 30% 20% 10% 0% 8 10 12 Duration of Peak Period Sources and notes: Chart based Brattle database of TOU rates tested in recent pricing pilots. Includes international TOU pilots (15 of 38 TOU pilots in the database). Comments -TOU rates designed recently (i.e., those developed for pricing pilots in the past decade) typically have a peak period of 6 hours or less - those are the TOU tariffs shown in the figure at left -Among the broader set of TOU rates being offered on a full-scale basis, it is common for existing TOU rates to have peak period of 12 hours or more Many of those older rates have been offered for many years and have low enrollment Privileged and Confidential Prepared at the Request of Counsel brattle.com 10#12Percent of Utilities Distinct TOU Offers per Utility Number of TOU Offers per Utility 75% 60% 45% 30% 15% 0% 1 3 2 Number of Distinct TOU Offers Retail Competition Yes No Comments Among utilities offering TOU rates, there are on average two distinct TOU options available to customers -Features commonly differentiating the distinct TOU offers include timing of peak period, inclusion of demand charge, and applicability to specific end- uses such as electric vehicles or heat pumps Sources and notes: Brattle analysis of OpenEl Utility Rates Database. Data shown for IOUS only. Privileged and Confidential Prepared at the Request of Counsel brattle.com | 11#13Costs Recovered Through TOU Charge Costs Recovered under TOU Rate Residential Name of Investor-Owned Utility State Customers Generation Transmission Distribution [1] Potomac Electric Power Company MD 496,347 [2] Jersey Central Power & Light Company NJ 977,420 [3] Arizona Public Service Company [4] NSTAR Electric Company AZ 1,046,989 MA 1,063,565 [5] Connecticut Light & Power Company CT 1,117,897 [6] Baltimore Gas & Electric Company MD 1,132,934 [7] San Diego Gas & Electric Company CA 1,266,249 [8] Ohio Power Company OH 1,276,363 [9] Consumers Energy Co MI 1,577,087 [10] Virginia Electric & Power Company VA 2,150,818 [11] Southern California Edison Company CA 4,381,511 [12] Pacific Gas & Electric Company CA 4,749,486 Average 1,769,722 92% 8% 58% We reviewed the tariffs of large utilities that offer a TOU Generation costs are almost always recovered on a time-differentiated basis Distribution costs are recovered through a time-varying charge in roughly half of the cases Transmission costs are recovered through a time-varying charge in only one case Ten other TOU rates offered by large IOUS were researched, though information on the unbundled costs was not available Privileged and Confidential Prepared at the Request of Counsel brattle.com 12#14Emerging Trends Privileged and Confidential Prepared at the Request of Counsel brattle.com 13#15Design Solar PV adoption is causing some utilities to rethink the design of residential TOU rates The "duck curve" introduces a need for: - Increased load during mid-day hours when there is excess solar PV output; and - Reduced load during late evening hours when PV output drops and generation must otherwise ramp up quickly to balance the system As a result, the TOU peak period price is being shifted later in the evening and/or the price is being reduced during the middle of the day APS: Revised TOU design to include a super-off-peak winter price between 10 am and 3 pm, and shifted the peak period from noon-7 pm to 3-8 pm Hawaii: Piloting a TOU rate with discounted mid-day price (9 am to 5 pm) and delayed peak period (5 pm to 10 pm) California: Delaying start of peak period by five hours (new peak period definition will be 4-9 pm in San Diego, previously started at 11 am) SW England: Distribution utility piloted TOU rates with low mid-day price to relieve distribution system constraints caused by high PV output Privileged and Confidential Prepared at the Request of Counsel brattle.com | 14#16Deployment Historically, TOU rates have been offered to residential customers on an opt-in basis However, with the deployment of smart metering, there has been a gradual shift toward default or mandatory TOU offerings. - SMUD: Transition begun in the fall of 2019 California IOUS: Transition to begin in 2020 Fort Collins, Colorado: Mandatory TOU rates deployed fall of 2019 Ontario, Canada: Province-wide rollout of default TOU was initiated for all utilities in 2012 Ireland: TOU variable charges will be a required feature of competitive retail suppliers following the deployment of smart metering by 2020 Italy: Default TOU with modest price differential has been in place for many years Other: Spain offers real time pricing as the default tariff Maryland: Peak time rebates offered to all customers on a default basis Privileged and Confidential Prepared at the Request of Counsel brattle.com 15#17Motivation Historically, the primary motivation for offering TOU rates has been to introduce a more cost-reflective rate that provides customers with an incentive to reduce consumption during higher-cost times of day Recently, intervenors in DG rates proceedings have proposed TOU rates as a solution to the challenge of recovering grid costs from customers with rooftop solar - - Volumetric TOU rates are commonly proposed by solar advocacy organizations as an alternative to higher fixed charges or the introduction of a demand charge Sometimes the rate proposals include a dynamic price signal which is combined with the static TOU price signal (i.e., CPP/TOU combo) Arizona, Nevada, Kansas, and Colorado are just a few examples of states where TOU rates have been proposed by intervenors for this reason Privileged and Confidential Prepared at the Request of Counsel brattle.com 16#18TOU Pilots Number of Residential TOU Pilots Initiated, by Year Pilots 8 Co 6 2 0 2000 2005 2010 Year of Study 2015 Comments -38 TOU pilots have been conducted over the past two decades ―The pilots have tested 153 different TOU rates -There was a surge in pilot studies in the 2011- 2013 timeframe driven by US DOE stimulus funding, but TOU rates have continued to be piloted since Sources and notes: Chart based Brattle database of TOU rates tested in recent pricing pilots. Includes international TOU pilots (15 of 38 TOU pilots in the database). Privileged and Confidential Prepared at the Request of Counsel brattle.com 17#19Price Response Relationship Between Price Response and Price Ratio. Peak Impact 60% 40% 20% 0% 2 4 6 8 10 Peak to Off-Peak Price Ratio Rate Design →With Technology → Price Only Sources and notes: Arcturus, a Brattle database of customer response to time-varying rates. Arcturus includes international TOU pilots (15 of 38 TOU pilots in the database). Comments -Results of the recent TOU pilots demonstrate that customers respond to time- varying rates by shifting their on-peak usage to off- peak hours -As the price ratio increases, customers shift usage in greater amounts, but at a declining rate -When offered with enabling technology, the effect is stronger Privileged and Confidential Prepared at the Request of Counsel brattle.com 18#20What comes after TOU rates? Critical-peak pricing and variable peak pricing tariffs - OGE's variable peak pricing program is the best in class and a harbinger of the future Some 20% of its customers are enrolled in the rate Customers can elect to have the utility install smart thermostats with a price trigger Real-time pricing with enabling technologies - Most states have announced aggressive decarbonization goals by 2050 The future supply mix will be dominated by intermittent renewable resources This will require dynamic load flexibility RTP with enabling technologies that let prices flow to devices will become a necessity Privileged and Confidential Prepared at the Request of Counsel brattle.com 19#21Brattle Resources Faruqui, Ahmad, "Customer Centricity: Lynchpin of Utility Strategy, Public Utilities Fortnightly, November 2019. Faruqui, Ahmad, "2040: A Pricing Odyssey," Public Utilities Fortnightly, June 2019. Faruqui, Ahmad and Mariko Geronimo Aydin, "Moving Forward with Electric Tariff Reform," Regulation, Fall 2017. https://object.cato.org/sites/cato.org/files/serials/files/regulation/2017/9/regulation-v40n3-5.pdf Faruqui, Ahmad, "Innovations in Pricing," Electric Perspectives, September/October 2017. https://mydigimag.rrd.com/publication/?i=435343&ver=html5&p=42#{"page":42,"issue_id":435343} Faruqui, Ahmad and Henna Trewn, "Enhancing Customer-Centricity," Public Utilities Fortnightly, August 2017. https://www.fortnightly.com/fortnightly/2017/08/enhancing-customer-centricity Faruqui, Ahmad and Henna Trewn, "Rethinking Customer Research in the Utility Industry," Public Utilities Fortnightly, July 2017. https://www.fortnightly.com/fortnightly/2017/07/rethinking-customer-research Privileged and Confidential Prepared at the Request of Counsel brattle.com 20#22Brattle Resources || Faruqui, Ahmad, Wade Davis, Josephine Duh, and Cody Warner, "Curating the Future of Rate Design for Residential Customers," Electricity Daily, 2016. https://www.electricitypolicy.com/Articles/curating-the-future-of-rate-design-for-residential- customers "The Impact of Time-of-Use Rates in Ontario," with Neil Lessem, Sanem Sergici, and Dean Mountain, Public Utilities Fortnightly, February 2017. https://www.fortnightly.com/fortnightly/2017/02/impact-time-use-rates-ontario "Dynamic pricing works in a hot, humid climate: evidence from Florida," with Neil Lessem and Sanem Sergici, Public Utilities Fortnightly, May 2017. https://www.fortnightly.com/fortnightly/2017/05/dynamic-pricing-works-hot-humid-climate Faruqui, Ahmad, Toby Brown and Lea Grausz, "Efficient Tariff Structures for Distribution Network Services," Economic Analysis and Policy, 2015. http://www.sciencedirect.com/science/article/pii/S0313592615300552 Faruqui, Ahmad, Ryan Hledik and Neil Lessem, "Smart By Default," Public Utilities Fortnightly, August 2014. http://www.fortnightly.com/fortnightly/2014/08/smart- default?page=0%2C0&authkey=e5b59c3e26805e2c6b9e469cb9c1855a9b0f18c67bbe7d8d4ca08a8abd 39c54d Privileged and Confidential Prepared at the Request of Counsel brattle.com 21#23Brattle Resources III Faruqui, Ahmad, Sanem Sergici and Lamine Akaba, “Dynamic Pricing in a Moderate Climate: The Evidence from Connecticut," Energy Journal, 35:1, pp. 137-160, January 2014. Faruqui, Ahmad and Sanem Sergici, "Arcturus: International Evidence on Dynamic Pricing," The Electricity Journal, 26:7, August/September 2013, pp. 55-65. http://www.sciencedirect.com/science/article/pii/S1040619013001656 Faruqui, Ahmad, Sanem Sergici, and Lamine Akaba, "Dynamic Pricing of Electricity for Residential Customers: The Evidence from Michigan," Energy Efficiency, 6:3, August 2013, pp. 571–584. Faruqui, Ahmad, Ryan Hledik, and Jennifer Palmer, Time-Varying and Dynamic Rate Design. Global Power Best Practice Series, The Regulatory Assistance Project (RAP), 2012. Faruqui, Ahmad and Jennifer Palmer, "Dynamic Pricing of Electricity and its Discontents," Regulation, Volume 34, Number 3, Fall 2011, pp. 16-22. http://www.cato.org/pubs/regulation/regv34n3/regv34n3-5.pdf Faruqui, Ahmad and Sanem Sergici, “Dynamic pricing of electricity in the mid-Atlantic region: econometric results from the Baltimore gas and electric company experiment," Journal of Regulatory Economics, 40:1, August 2011, pp. 82-109. Privileged and Confidential Prepared at the Request of Counsel brattle.com 22#24Brattle Resources IV (concluded) Faruqui, Ahmad and Jackalyne Pfannenstiel, "California: Mandating Demand Response," Public Utilities Fortnightly, January 2008, pp. 48-53. http://www.fortnightly.com/display_pdf.cfm?id=01012008 MandatingDemand Response.p_df Faruqui, Ahmad and Stephen S. George, "Quantifying Customer Response to Dynamic Pricing," Electricity Journal, May 2005. Faruqui, Ahmad, William D. Bandt, Tom Campbell, Carl Danner, Harold Demsetz, Paul R. Kleindorfer, Robert Z. Lawrence, David Levine, Phil McLeod, Robert Michaels, Shmuel S. Oren, Jim Ratliff, John G. Riley, Richard Rumelt, Vernon L. Smith, Pablo Spiller, James Sweeney, David Teece, Philip Verleger, Mitch Wilk, and Oliver Williamson, "2003 Manifesto on the California Electricity Crisis," May 2003. http://www.aei-brookings.org/publications/abstract.php?pid=341 Faruqui, Ahmad, Hung-po Chao, Vic Niemeyer, Jeremy Platt, and Karl Stahlkopf, "Analyzing California's Power Crisis," The Energy Journal 22, no. 4 (2001): 29–52. Faruqui, Ahmad and J. Robert Malko, "Residential Demand for Electricity by Time-of-Use: A Survey of Twelve Experiments with Peak Load Pricing,” Energy 8, no. 10 (1983): 781–795. Privileged and Confidential Prepared at the Request of Counsel brattle.com 23