IEEE Power & Energy Magazine - May/June 2020 - 23

Case Studies
Despite concerns about customer response, several utilities have already begun offering dynamic rate options with
promising initial results. In Maryland, for example, the three
largest utilities (Pepco, Delmarva Power, and Baltimore Gas
and Electric) have each implemented peak-time rebates as
the default tariff to all their customers. These programs have
resulted not only in peak load reductions for the utility but
also customer savings and satisfaction.
Figure 3 illustrates the results of 332 TOU, CPP, and PTR
pricing experiments. Some of the 332 experiments had very
high peak-to-off-peak ratios and could not be included in
the figure. These results further support the idea of customer
peak-load reductions in response to higher peak-to-off-peak
price ratios. Some experiments provided a pure price signal
to customers, whereas others included enabling technologies, such as smart thermostats, with the pricing signal.
Around 14% of all U.S. utilities, including roughly half
of all investor-owned utilities, now offer a residential TOU
rate. Among these TOU rates, 6% now also include a demand
charge on top of the time-varying volumetric charge. Although
adoption rates for dynamic tariffs remain low, the successes
of a few utilities show promise for customer willingness to
adopt future tariffs.
The Arizona Public Service (APS) has adopted TOU
and demand charges. Approximately 57% of APS's residential customers are enrolled in TOU rates, and 20% of
these customers also pay a demand charge. To ease the
transition since it first implemented demand charges in
1989, APS made a significant commitment to providing
customers with information on the various rate options.
Ultimately, this resulted in a rate-comparison tool that
customers either could use on their own or with the assistance of a customer service representative. Additionally,
APS began to provide customers with an annual analysis
of their usage, energy savings recommendations, and a
rate recommendation if they would benefit from switching. The company also provides rate comparisons for customers who contact the call center. As APS began rolling
out more advanced metering to all customers, the ratecomparison tool was modified to reflect an analysis of
actual load data. Over the years, APS has not marketed
any particular rate option to its customers. Instead, it has
provided them-through the rate-comparison tool-the
may/june 2020

information they need to make an informed decision about
what rates are best for them.
APS is not alone in introducing demand charges for
residential customers. At least 51 demand charges are now
being offered in 22 states by 43 utilities. Demand charges
tend to be disproportionately prevalent among cooperatives, which are owned by the customers and thus have an
additional responsibility to guarantee equity among members. Some cooperatives have even implemented mandatory demand charges for certain customers. For example,
the Salt River Project has mandatory demand charges for
customers with rooftop solar panels.
Successful dynamic pricing case studies are often supported
by smart technologies. In 2012, Oklahoma Gas and Electric
(OG&E) rolled out its SmartHours program, a time-based program offered to residential customers on an opt-in basis. As
part of the program, the utility offers its customers the option to
install smart thermostats, which will adjust in response to price
signals according to customers' programmed preferences. However, customers also maintain full control, so they can override
these settings and choose not to respond to OG&E's alerts. A
fifth of the utility's customers have signed up for SmartHours
and achieved significant savings on their electric bills.
ComEd has similarly partnered with Nest, a smart thermostat provider, for its AC Cycling Program. Under this program, ComEd offers customers a US$100 rebate to purchase
and install a Nest thermostat, which it can then control during
a maximum of 10 peak events each summer. The program
runs from June through September, and customers receive a
US$10 bill credit for each month of participation. The smart
thermostat is designed to reduce energy usage while maintaining a comfortable temperature, but if customers start to
feel too warm, they can manually override it at any time.

Transitioning in the Digital Age
Increasingly widespread advancements in technology are
integral to empowering and informing customers about their

60
Peak Impact (%)

between customers as well as economic efficiency in the
use of scarce capital and fuel resources. Most of the tension
between energy efficiency and rate design stems from the
recovery of fixed costs, which is best addressed through separate financial mechanisms such as revenue decoupling or
lost-revenue adjustment mechanisms. Such mechanisms protect utilities from fluctuations in sales, either by completely
breaking the link between revenue and sales or allowing
utilities to recover lost revenues resulting specifically from
energy-efficiency programs.

0
2
4
6
8
Peak-to-Off-Peak Price Ratio
Rate Design
With Technology

Price Only

figure 3. Price responsiveness under dynamic pricing
experiments.
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