IEEE Power & Energy Magazine - May/June 2020 - 24

power-supply choices. Many customers today are likely
to have not only smart meters but also smart digital appliances, thermostats, and digital apps to track and optimize
their own usage patterns. In the age of constant connectivity
and the Internet of Things, newer generations of customers
are already well equipped to embrace this shift and adapt to
more open and responsive two-way communication. In fact,
many of these customers have already embraced modern
pricing designs in other aspects of their life. They encounter
dynamic pricing every day, from airlines and hotels to concerts and movies, and they understand how to interpret and
respond to surge pricing from ride sharing apps like Uber.
The success of all these designs is in, large part, predicated on their transparency and simplicity and in the
manner in which they are clearly conveyed to customers.
However, there is no reason utilities cannot likewise communicate their prices and offer more transparent bills that
minimize unnecessary line items and unclear calculations.
Even relatively complex tariffs can be made simple to customers, especially with the profusion of modern-day technologies. With such technologies, customers can respond to
dynamic rates and achieve savings without constant monitoring. For example, smart thermostats can automatically
adjust home temperatures with minimal programming, and
utilities can send messages and text alerts to prepare customers for peak events.
Utilities can also use these same tools and technologies
to understand and fulfill their customers' needs, for instance,
through pilot programs and experimental studies, which can
help predict customer response. To minimize adverse reactions at the beginning of the transition, utilities can also
progressively ease customers from their old rates to the new
ones through initial bill protections or transition rates.
Any change in rates will invariably cause some customer
bills to go up and others to go down. The change in bills will
depend on each customer's energy consumption, load factor,
and load shape as well as the structure of the new rate. For
example, a customer with a very high load factor would likely
see a lower bill on a TOU energy rate compared to a flat rate,
whereas a customer with a very low load factor would likely
see a higher bill with the new cost-reflective tariff, especially if
peak coincides with times of peak system energy prices. Customers with low kilowatt demand would see lower overall bills
with the introduction of a demand charge, while customers with
low kilowatt demand and a high load factor would see a lower
bill with a demand charge offered in combination with a TOU
energy rate. As a result, while most bills would not change substantially, this may not be the case for all customers.
Customers whose bills do go up substantially under threepart tariffs will likely complain, and if their complaints are
picked up by the media, the move toward new tariffs could
come to a standstill. Thus, implementing more efficient,
cost-based tariff reform always requires serious consideration of customer satisfaction and education. However, given
all of the changes and technological advancements currently
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sweeping the industry, this should not be a reason to resist
progress and maintain an outdated status quo.
Instead, to balance these challenges and ease the transition, utilities should first analyze customer bill effects to better mitigate these impacts and anticipate customer reactions.
Before even implementing the three-part tariff, utilities and
regulators can calculate expected bill changes for a representative sample of customers, assuming existing load profiles.
These results should be plotted in the form of a propeller chart
identifying which customers will see higher bills and which
will see lower bills. The utility can then analyze the sociodemographic and regional characteristics of those with significantly higher bills and understand the degree to which this
impact affects all users.
Next, utilities can carry out simulations to predict and
incorporate customer responses. Models, such as the Price
Response Impact Simulation Model, which was initially
developed to quantify the impact of TOU and dynamic pricing in California's 2003-2004 statewide pricing pilot, can
perform a bill-impact analysis that allows for a certain amount
of demand response. The adverse bill impacts under the new
three-part tariffs should be lower than they were without
demand response, as customers shift their usage between
periods in response to new average and relative prices.
If the adverse bill impacts are still significant for a certain
group of customers, utilities can take several approaches to
ease their transition. These include the following:
✔✔ Gradualism: Roll out the new rates gradually for each
rate-design element to preserve bill stability, for instance, by gradually ramping up the peak price of a
new TOU rate.
✔✔ Bill protection: Provide these customers with bill protection in the first year and then gradually phase it out
over three to four years
✔ ✔ Protections for vulnerable customers: Make the
three-part rate optional for vulnerable customers,
while making it mandatory for the largest customers
and the default rate design for all other customers. Alternatively, offer customers who are vulnerable or will
experience adverse bill impacts financial assistance
for a defined period of time.
✔✔ Enabling technologies: Install enabling technologies,
such as smart thermostats, on customers' premises
that allow them to more easily respond to price signals
under the new tariffs.
✔✔ Two-staged rollout: Structure the rate into two stages.
Under the first stage, charge customers the current
rate, if their usage resembles their historical usage
over a given reference period. Under the second stage,
charge customers the new tariffs for any deviations
from their historical usage.
Utilities can also prepare for the rollout by conducting
focus groups with customers to test possible education and
marketing campaigns and gauge customer understanding of
the new tariffs. Based on their findings, utilities can then
may/june 2020

IEEE Power & Energy Magazine - May/June 2020

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