1. Accenture 2. Advanced Energy 3. Alectra Utilities 4. Ally Energy Solutions 5. Alternative Energy Systems Consulting 6. Ameren

1. Accenture 31. Commonwealth Edison 66. FirstEnergy 100. Nexant 132. Skipping Stone 2. Advanced Energy 32. Con Edison 67. FleetCarma 101. North Carolina Electric 133. Smart Electric Power Alliance 3. Alectra Utilities 33. Connected Energy 68. FPL Membership Corporation 134. Smartenit 4. Ally Energy Solutions 34. Connected Energy Limited 69. Franklin Energy 102. NTC 135. Snohomish County PUD 5. Alternative Energy Systems 35. Consumers Energy Company 70. GDS Associates 103. OATI 136. SolarEdge Technologies Consulting 36. Contract Callers 71. Generac 104. Oklahoma Gas & Electric 137. Southern California Edison 6. Ameren 37. CPower Energy Management 72. Georgia Power Company 105. Olivine 138. Southern California Gas 7. American Public Power 38. CPS Energy 73. Google (Nest) 106. Oncor Electric Delivery Company Association 39. Customized Energy Solutions 74. Great River Energy 107. Open Systems International 139. Steffes 8. Apex Analytics 40. Dairyland Power Cooperative 75. GridFabric 108. OpenADR Alliance 140. Sunverge Energy 9. Apogee Interactive 41. DNV GL 76. GridOptimize 109. Opinion Dynamics 141. Tantalus 10. Applied Energy Group 42. DTE Energy 77. GridPoint 110. Opus One 142. Tennessee Municipal Electric 11. APTIM 43. Duke Energy 78. Guidehouse 111. Oracle Utilities Power Association 12. Aquanta 44. E Source 79. Hawaiian Electric Company 112. Orange and Rockland Utilities 143. Tennessee Valley Authority 13. Arizona Public Service 45. E4TheFuture 80. High West Energy 113. Pacific Gas & Electric 144. Tetra Tech 14. Armada Power 46. Eaton 81. Honeywell Smart Energy 114. PECO, An Exelon Company 145. The Brattle Group 15. Austin Energy 47. ecobee 82. ICF 115. Pepco, an Exelon Company 146. Threshold 16. Baltimore Gas and Electric 48. Edison Electric Institute 83. Idaho Power 116. Portland General Electric 147. Tierra Resource Consultants 17. Berkshire Hathaway Energy 49. Efficiency Vermont 84. IGS Energy 117. Powerley 148. TRC 18. Black & Veatch Management 50. Elocity 85. Illume Advising 118. PPL Electric Utilities 149. Tri-State Generation & Consulting 51. Emerson Commercial & 86. Indianapolis Power & Light Co. 119. Public Service Company of Transmission 19. Bonneville Power Residential Solutions 87. Integral Analytics Oklahoma 150. Trickle Star Administration 52. EMI Consulting 88. IPKeys Power Partners 120. Rappahannock Electric 151. TROVE 20. Bristol Tennessee Essential 53. Enbala 89. Itron Cooperative 152. Tucson Electric Power Services 54. Encycle 90. Jackson EMC 121. Resideo 153. Uplight 21. Buffalo Niagara Medical 55. Enel X 91. Landis+Gyr 122. RF Demand Solutions 154. Utility Load Management Campus 56. Energy Federation 92. Leap 123. Sacramento Municipal Utility Exchange 22. Cadmus 57. Energy Solutions 93. Modesto Irrigation District District 155. Vectren 23. Calico Energy 58. EnergyHub 94. National Grid 124. Salt River Project 156. Warranty Design 24. Central Hudson Gas & Electric 59. EnerVision 95. National Rural Electric 125. San Diego Gas & Electric 157. Waseda University 25. Chelan PUD 60. Entergy Cooperative 126. Santee Cooper 158. West Monroe Partners 26. City of Tallahassee Utilities 61. EPRI 96. NB Power 127. Schneider Electric 159. Xcel Energy 27. Clean Power Research 62. ERS 97. New Braunfels Utilities 128. Scope Services 160. Zen Ecosystems 28. CLEAResult 63. Evergy 98. New Hampshire Electric 129. ScottMadden 161. Zeuthen Management 29. COI Energy Services 64. Eversource Cooperative 130. Seattle City Light Solutions 30. Colbun 65. Extensible Energy 99. New York Power Authority 131. Shifted Energy PLMA Load Management Dialogue Why Is Electricity Pricing So Difficult? Between a Rock and a Smart Meter

Ahmad Faruqui Bill LeBlanc Derek Kirchner The Brattle Group E Source Consumers Energy & PLMA Exec Cmte The Five “Immortal Objections” to Time-of-Use Rates

PRESENTED TO PLMA Load Management Dialogue

PRESENTED BY Ahmad Faruqui, Ph.D.

May 28, 2020

“There has never been any lack of interest in the subject of electricity tariffs. Like all charges upon the consumer, they are an unfailing source of annoyance to those who pay, and of argument in those who levy them. There is general agreement that appropriate tariffs are essential to any rapid development of electricity supply, and there is complete disagreement as to what constitutes an appropriate tariff.” - D.J. Bolton, Costs and Tariffs in Electricity Supply (1938)

PLMA - Load Management Dialogue brattle.com | 4 And nothing stirs up controversy better than a plain old time-of-use rate

PLMA - Load Management Dialogue brattle.com | 5 The state of play

While there is a mountain of empirical evidence that customers accept and respond to TOU rates, skeptics continue to assert the contrary. That’s the primary reason why only 4% of the customers in the US are on TOU rates while nearly 80% of them are on smart meters.

Recently, a very respected and seasoned regulator wrote to me that TOU rates are “an exercise in modifying human behavior with little chance of success. Even if successful, they will not yield any tangible reduction in electricity costs.”

I have been keeping track of frequently voiced objections to TOU rates since I joined the EPRI Rate Design Study in 1979. The first one used to be the lack of metering technology. That one is no longer in my diary. Here are the five that are in my diary. They have endured for so long that I call them Immortal Objections.

PLMA - Load Management Dialogue brattle.com | 6 Objection 1

Objection: While TOU rates might reduce peak load, they will not lower customer bills.

Response: Well-designed TOU rates will yield savings to customers even in the short term as customer reduce peak loads and shift their peak usage to off- peak periods. In the long run, the savings will be even greater as customers install new digital devices such as smart thermostats. Additionally, as peak demands are lowered, there will be less need to invest in peaking capacity and that will further reduce costs to customers over the long run.

PLMA - Load Management Dialogue brattle.com | 7 Objection 2

Objection: Lower peak demand will not lower transmission and distribution costs since they do not depend on load.

Response: Congestion is rising on distribution circuits and that can be relieved by targeted TOU pricing. In addition, TOU pricing can lower the need for T&D investments in the long run. Most ISOs/RTO’s would welcome the demand response created by TOU rates.

PLMA - Load Management Dialogue brattle.com | 8 Objection 3

Objection: On-going pilots with TOU rates and other time-varying rates show minimal customer reaction to price signals in changing their load profiles

Response: There is a world of contrary evidence on this topic. Customers do respond to TOU rates and lower peak demands while shifting some of that load to off-peak periods.

PLMA - Load Management Dialogue brattle.com | 9 Objection 4

Objection: Residential customers are busy with seeing off kids to school in the morning, commuting to work, returning home to have dinner with the family and then making time to watch TV and perhaps do the laundry. Customers have little time or interest in becoming a home energy manager. They just want the lights to come on when they flip the bill and get an affordable bill at the end of the month. Response: While that is true of the vast majority of customers, sound scientific research has shown that, on average, TOU pricing motivates customers to modify their lifestyle and save money. In OGE’s case, they have signed up a fifth of their customers onto dynamic pricing, often enabled with a smart thermostat. On average, these customers are reducing their peak demand by 40% and lowering their bills by 20%. SMUD deployed default TOU rates without any hitch last year. Fort Collins in Colorado instituted mandatory TOU pricing last year. Consumers Energy will begin deploying default TOU rates in June. Xcel Energy in Colorado has filed for deploying default TOU rates this year. SDGE has already done that and PG&E and SCE will begin deploying TOU rates from October onwards.

PLMA - Load Management Dialogue brattle.com | 10 Objection 5

Objection: In the developing world, people eke out a meager existence, living from hand to mouth. They are so focused on making ends meet that they don’t have time to focus on responding to TOU rates.

Response: Even in the developing world, people are seeking to lower their energy bills and modify their lifestyle to improve the climate of the planet. While we don’t have a lot of evidence from developing countries on the efficacy of TOU rates, there is no reason to think they won’t work there.

PLMA - Load Management Dialogue brattle.com | 11 THE POWER OF ECONOMICS brattle.com Why Is Electricity Pricing So Difficult? Between a Rock and a Smart Meter

Chief Instigation Agent May 28, 2020

Bill LeBlanc

www.esource.com Who Is E Source?

▪ Research and advisory firm with 30 years utility experience ▪ Headquartered in Colorado ▪ Membership-based

Economics People Policy

• Are the price • Is it perceived as • Does it meet signals right to fair? equality and create grid • Does it cause fairness goals? efficiency? other costs that • Can it facilitate • Do the retail prices exceed the environmental reflect costs? benefits? goals. • Do economic • Will people • Does it enable decisions include actually customer choice? all costs? understand and • Does it encourage act, while the right improving investments? satisfaction?

Economics People Policy

• Are the price • Is it perceived as • Does it meet signals right to fair? equality and create grid • Does it cause other fairness goals? efficiency? costs that exceed • Can it facilitate • Do the retail prices the benefits? environmental reflect costs? • Are segments goals. • Do economic considered? • Does it enable decisions include • Will people actually customer choice? all costs? understand and • Does it encourage act, while the right improving investments? satisfaction?

Economics People Policy

• Are the price • Is it perceived as • Does it meet equity signals right to fair? and fairness goals? create grid • Does it cause other • Cost-based or efficiency? costs that exceed goal-based? • Do the retail prices the benefits? • Can it facilitate reflect costs? • Are segments environmental • Do economic considered? goals? decisions include • Will people actually • Does it enable all costs? understand and customer choice? act, while • Does it encourage improving the right satisfaction? investments?

High

Fixed Rate Provider per kWh Risk & TOU Rate Expected Demand/TOU Total + Peak signal Customer Default Rate: Price ~Real-time Pricing Low Customer Risk High

>Overpayment is shown Group Proportion Daily Daily Annual with positive values of Cost Cost Cost and underpayment Customers Delta - Delta - Deviance with negative values Mean ($) Variance per >Cluster Group 1 under- ($) Customer paid their true cost of ($) service by an average Overall 100% 0.0000 0.0565 0 of $21.42 per year per Group 1 21% -0.0587 0.0238 -21.42 customer Group 2 15% -0.0036 0.0402 -1.31 >Group 7 overpaid on Group 3 12% 0.0221 0.0480 8.07 average $16.87 per Group 4 11% -0.0137 0.0198 -5.00 year per customer Group 5 21% 0.0380 0.0713 13.87 Group 6 15% 0.0107 0.1179 3.91 Group 7 5% 0.0462 0.0733 16.87

I want my energy company just to talk to me like I’m not an engineer.

What’s that unit of energy they make me buy?

Can’t they just tell me how much it costs to charge my phone overnight?

Yes, to save money, manual change Yes, to save money, automated Maybe, would need to know more No, keep my same rate design 100 12 14 16 22 25 80 22 30 26

60 35 33 30 26 27 40 17 19 Percentage of of Percentage respondents

20 36 32 26 29 22

0 Cost-conscious Convenience-focused Quality-focused Environmentally focused Technology-focused

Base: All respondents (n = 3,000). Question S5_3: Time-of-use: Which statement most accurately represents © E Source, 2015 Innovative your desire for this type of rate? Note: Percentages may not add to 100 percent due to rounding. Residential Rate Design and Pricing

Yes, to save money, manual change Yes, to save money, automated

100

30 26 27 40 17 19 Percentage of of Percentage respondents

20 36 32 26 29 22

0 Cost-conscious Convenience-focused Quality-focused Environmentally focused Technology-focused

100

16 21 19 26 32 80

31 33 60 36 33

29 40 22 22

Percentage of of Percentage respondents 17 20 20 29 26 25 21 15

0 Cost-conscious Convenience-focused Quality-focused Environmentally focused Technology-focused

Base: All respondents (n = 3,000). Question S5_3: Demand charge: Which statement most accurately © E Source, 2015 Innovative represents your desire for this type of rate? Note: Percentages may not add to 100 percent due to rounding. Residential Rate Design and Pricing

Amount of bill Rate plan design Energy adjustments

Automatic peak $90 average/monthBill average is $90, but youFlat/standard have an automated device that reduces your peak energy use by 10 percent 113 reduction of 10%

$90 average/monthBill average is $90,Time price is- ofhigher-use during the day than at night,Automated shifting is neededshifting but automated 95

$90 average/monthBill average is $90,Time price- isof higher-use during the day than atManual night, some shiftingshifting of use is needed 91 Scenario

$100 average/month Flat/standardMonthly bill average is $100, rate is flatNone all day, no shifting of use is needed 86

$105 fixed Unlimited Bill is $105 regardlessNone of amount of use and time of use 72

Thermostat Bill average is $90, but your thermostat temperature is automatically raised to 80 degrees for four hours 64 during six summer afternoons when ratesautomatically are higher raised $90 average/month Flat/standard to 80° for 4hrs on 6 0 20 40 60 80 100 120 140 160 peak summer Level of interest afternoons Question: Please indicate the one scenario you would be most interested in as well as the one scenario you would be least © E Source, 2015 Innovative Residential interested in. Note: This slide shows 6 of 15 scenarios respondents were asked to rate. Rate Design and Pricing

Choice design Localization design Advisory design

One Price, All Day Time of Day “Demand” Pricing Pricing Most predictable, Happy Hour pricing Pay a small amount harder to save. weekdays 9pm to for energy but also 9am. a charge for demand*.

Most predictable, Happy Hour pricing Pay a small amount for harder to save. weekdays 9pm to 9am. energy but also a charge for demand*.

Best for: People who Best for: People who Best for: People who cannot change their can shift use to save. can control large energy use Shift heating/cooling, appliances habits/times. water heating, EV automatically; people charging. who are comfortable with tech.

One Price, All Day Time of Day Pricing “Demand” Pricing

Most predictable, harder Happy Hour pricing Pay a small amount for to save. weekdays 9pm to 9am. energy but also a charge for demand*. Best for: People who Best for: People who can Best for: People who can cannot change their shift use to save. Shift control large appliances energy use habits/times. heating/cooling, water automatically; people who heating, other large loads. are comfortable with tech.

Optional Local Solar Optional Local Solar Optional Local Solar Energy Adder Energy Adder Energy Adder

One Price, All Day Time of Day Pricing “Demand” Pricing

Most predictable, harder to Happy Hour pricing weekdays Pay a small amount for energy save. 9pm to 9am. but also a charge for demand*.

Best for: People who cannot Best for: People who can shift Best for: People who can change their energy use use to save. Shift control large appliances habits/times. heating/cooling, water heating, automatically; people who are other large loads. comfortable with tech.

Optional Local Solar Energy Adder Optional Local Solar Energy Optional Local Solar Energy Adder Adder Optional Flash Peak and Flash Optional Flash Peak and Flash Sale Sale

1. Are you willing to alter your use of 3. Which of the following best describes energy to save money? you and your household? 2. What large energy using appliances . We are wanting to lower our bill any way we might you be able to shift to 9pm-9am can. and avoid the other times? . We want to lower our environmental impact. . . Heating We want simplicity and don’t have time to think about our energy use. . Cooling . We love the latest technology and are early . Pool pump/hot tub/spa adopters. . Electric Vehicle charging . Gaming

Carbon, rates, and bills are all reduced Economically Grid-efficient efficient electrification electrification

Ahmad Faruqui Bill LeBlanc Derek Kirchner The Brattle Group E Source Consumers Energy & PLMA Exec Cmte Load Management Dialogue Series: Award-Winning Initiatives

June 4 – Arizona Public Service and EnergyHub for APS Distributed Energy Resource Aggregations

June 18 – Connected Energy (UK) Ltd for Battery Recycling in Belgium

July 9 – Austin Energy for Austin SHINES Project

July 16 – CPS Energy for Public Engagement

Aug. 13 – City of New York, Dept of Citywide Admin Services for Building Operator Engagement Appendix: About Ahmad and The Brattle Group Presenter Information

AHMAD FARUQUI, PH.D. Principal │ San Francisco, CA [email protected] +1.925.408.0149

Ahmad Faruqui is an internationally recognized authority on the design, evaluation and benchmarking of tariffs. He has analyzed the efficacy of tariffs featuring fixed charges, demand charges, time-varying rates, inclining block structures, and guaranteed bills. He has also designed experiments to model the impact of these tariffs and organized focus groups to study customer acceptance. Besides tariffs, his areas of expertise include demand response, energy efficiency, distributed energy resources, advanced metering infrastructure, plug-in electric vehicles, energy storage, inter-fuel substitution, combined heat and power, microgrids, and demand forecasting. He has worked for nearly 150 clients on 5 continents, including electric and gas utilities, state and federal commissions, governments, independent system operators, trade associations, research institutes, and manufacturers.

Ahmad has testified or appeared before commissions in Alberta (Canada), Arizona, Arkansas, California, Colorado, Connecticut, Delaware, the District of Columbia, FERC, Illinois, Indiana, Kansas, Maryland, Minnesota, Nevada, Ohio, Oklahoma, Ontario (Canada), Pennsylvania, Saudi Arabia, and Texas. He has presented to governments in Australia, Egypt, Ireland, the Philippines, Thailand, New Zealand and the United Kingdom and given seminars on all 6 continents. He has also given lectures at Carnegie Mellon University, Harvard, Northwestern, Stanford, University of California at Berkeley, and University of California at Davis and taught economics at San Jose State, the University of California at Davis, and the University of Karachi.

His research been cited in Business Week, The Economist, Forbes, National Geographic, The New York Times, San Francisco Chronicle, San Jose Mercury News, Wall Street Journal and USA Today. He has appeared on Fox Business News, National Public Radio and Voice of America. He is the author, co-author or editor of 4 books and more than 150 articles, papers and reports on energy matters. He has published in peer-reviewed journals such as Energy Economics, Energy Journal, Energy Efficiency, Energy Policy, Journal of Regulatory Economics and Utilities Policy and trade journals such as The Electricity Journal and the Public Utilities Fortnightly. He is a member of the editorial board of The Electricity Journal. He holds BA and MA degrees from the University of Karachi, both with the highest honors, and an MA in agricultural economics and a PhD in economics from The University of California at Davis, where he was a research fellow. The views expressed in this presentation are strictly those of the presenter(s) and do not necessarily state or reflect the views of The Brattle Group.

PLMA - Load Management Dialogue brattle.com | 39 About Brattle

The Brattle Group provides consulting and expert testimony in economics, finance, and regulation to corporations, law firms, and governments around the world. We aim for the highest level of client service and quality in our industry.

OUR SERVICES OUR PEOPLE OUR INSIGHTS

Research and Consulting Renowned Experts Thoughtful Analysis Litigation Support Global Teams Exceptional Quality Expert Testimony Intellectual Rigor Clear Communication

PLMA - Load Management Dialogue brattle.com | 40 Our Practices and Industries

ENERGY & UTILITIES LITIGATION INDUSTRIES Competition & Market Accounting Electric Power Manipulation Analysis of Market Financial Institutions Distributed Energy Manipulation Infrastructure Resources Antitrust/Competition Natural Gas & Petroleum Electric Transmission Bankruptcy & Restructuring Pharmaceuticals Electricity Market Modeling Big Data & Document Analytics & Medical Devices & Resource Planning Commercial Damages Telecommunications, Electrification & Growth Environmental Litigation Internet, and Media Opportunities & Regulation Transportation Energy Litigation Intellectual Property Water Energy Storage International Arbitration Environmental Policy, Planning International Trade and Compliance Labor & Employment Finance and Ratemaking Mergers & Acquisitions Gas/Electric Coordination Litigation Market Design Product Liability Natural Gas & Petroleum Securities & Finance Nuclear Tax Controversy Renewable & Alternative & Transfer Pricing Energy Valuation White Collar Investigations & Litigation

PLMA - Load Management Dialogue brattle.com | 41 Our Offices

BOSTON BRUSSELS CHICAGO LONDON

MADRID NEW YORK ROME SAN FRANCISCO

SYDNEY TORONTO WASHINGTON

PLMA - Load Management Dialogue brattle.com | 42 Appendix: About Bill and a few more things For more information

Bill LeBlanc Chief Instigation Agent, E Source 303-345-9142 [email protected]

Have a question? Ask E Source! Submit an inquiry: www.esource.com/question

You're free to share this document in its entirety inside your company. If you'd like to quote or use our material outside of your business, please contact us at [email protected] or 1-800-ESOURCE (1-800-376-8723).

Save money 51

Good for the environment, reduce my carbon 45 footprint

I want to have more control and independence over 23 my energy use

I love new technology 20

Fun to drive 17

Family member or friend recommendation 10

I want to be a leader in my community 9

0 20 40 60 80 100 Percentage of respondents

Base: Customers with an EV or hybrid vehicle, or show at least some interest in purchasing one in the next 3 years (n = 3,715). Question S4_3: Which of © E Source, 2018 DER Residential the following are primary reasons for your interest in a plug-in all-electric or hybrid vehicle? Select all that apply. Notes: “Other” and “None of the above” responses excluded from the slide. Customer Market Research

I’d stay on my current rate Conditions: even though I wouldn’t get a discount. I don’t want to • Discount to charge after have to worry about when I charge my car. 9:00 p.m. 32% • Higher price to charge late afternoon / early evening. • Car is programmed to charge at the right times.

I’d switch to the new rate and charge during the night because I want to save money. 68%

Base: Respondents without an EV or those with an EV who aren’t charged a different amounts depending on the time of © E Source, 2018 DER Residential day the household EV is charged (n = 7,011). Question S4_7: Which best describes your likely action? Customer Market Research

Total cost of charging my vehicle (dollars $) 53

Average daily cost of charging my vehicle (dollars $) 41

Opportunities to reduce the amount I pay to charge my 30 vehicle

The amount of gasoline equivalent to the amount of 28 electricity my car consumed

Opportunities to reduce my overall energy use (and 27 monthly electricity bill)

Pounds/kilos of carbon emissions reduction because I 16 drive an electric vehicle

0 20 40 60 80 100 Percentage of respondents

Base: Customers with an EV or hybrid vehicle, or show at least some interest in purchasing one in the next 3 years (n = 3,715). Question S4_9: Which of the following types of EV-related information would/do you want included on your monthly electricity bill? Select all that apply. Notes: This slide shows 6 of 15 responses from the survey. © E Source, 2018 DER Residential Customer Market Research

Number of Percentage of Anticipated utility program changes utilities (n) utilities (%)

EV time-of-use rates 22 63% Solar-specific rate change 20 57% Universal increased fixed charges 14 40% Universal time-of-use rates 11 31% Universal demand charges 8 23% Universal critical peak pricing 4 11%

Base: n = 35 utilities. Question: S5_2. Which changes do you anticipate proposing, piloting, or implementing in the next 3 years for residential © E Source, 2018 Utility customers? This includes any changes that are underway and will continue into the next 3 years. Select all that apply. Note: “Other” and “None of DER Strategy Benchmark the above” responses are excluded from the slide.