HOW WILL AMI

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HOW WILL AMI DYNAMIC PRICING AFFECT LOW INCOME
USERS?

• Ahmad Faruqui, Ph. D.
• Principal
• National Association of Regulatory Utility
  Commissioners
• New York, New York
• July 18, 2007

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Reasons why it might hurt them

• They cant shift much load since they dont have
  much load to begin with
• Most dont have central or room air conditioning
  equipment
• They have dont the money to invest in enabling
  technologies that facilitate peak clipping and
  load shifting
• They dont have the money to pay an additional
  metering charge
• AMI will be used to remotely disconnect them when
  they fall behind in their payments
• Ergo, they will be made worse off and should be
  excluded from AMI and dynamic pricing

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Reasons why it will help them

• Many low-income customers will benefit from
  dynamic pricing since they have
  flatter-than-average load profiles
• Others will benefit because they have a strong
  motivation to save money by curtailing peak load
• Californias pricing experiment (SPP) provides
  supporting evidence
• In Track B, which focused on low income consumers
  in San Francisco, consumers reduced peak load by
  2.6 percent
• In Track A, on a statewide basis, customers with
  incomes below 40,000 curtailed peak load by 10.9
  percent and those on the CARE rate by 2.9 percent
• The average customer in California curtailed peak
  load by 13 percent, the average customer in the
  temperate climate zone by 7.6 percent
• All together, 77 percent of all customers saved
  money
• Low-income users have also responded to RTP rates
  in Chicago

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How can we protect low-income users?

• Waive the AMI metering fee for all low-income
  users
• Make the AMI metering fee volumetric, which would
  favor low users, many of whom would be low-income
  users
• Raise the low-income discount on the monthly bill
  (in California, this is already 20 percent)
• Credit them (and all other users) with a credit
  for the hedging premium when they shift to
  dynamic pricing
• Monte Carlo simulations show that more than 95
  percent of users would benefit if given a 3
  percent hedging premium

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With demand response, AMI and dynamic pricing
become attractive to over 95 of customers
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Should we protect low income users?

• This is a major policy issue that should be
  debated in every state
• What is not a good idea is the notion of
  excluding low-income users from AMI and dynamic
  pricing
• This Swiss cheese deployment will prevent the
  full operational benefits of AMI being achieved
• It will raise The Gap that has to be covered by
  demand response and prevent its deployment
• All other customers will be deprived of demand
  response benefits that nationally speaking, could
  be in the 35 billion range

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Additional reading

• Brattle Group, The. The power of five percent.
  Discussion paper. May 2007.
• Brattle Group, The. Quantifying the benefit of
  demand response for PJM, prepared for PJM
  Interconnection LLC. and MADRI, January 2007
• Faruqui, Ahmad. Breaking out of the bubble how
  dynamic pricing can mitigate rate shock, Public
  Utilities Fortnightly, March 2007.
• Federal Energy Regulatory Commission (FERC), The
  US. Demand Response and Advanced Metering, Staff
  Report, August 2006
• North American Electric Reliability Corporation
  (NERC). 2006 Long-Term Reliability Assessment,
  October 16, 2006.
• Plexus Research, Inc., Deciding on Smart Meters,
  Edison Electric Institute, September 2006.

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Contact information

• Ahmad Faruqui, Ph. D.Principal
• The Brattle Group353 Sacramento Street, Suite
  1140San Francisco, CA 94111Voice
  415.217.1026Fax [phone]Cell 925.408.0149
  
• Email Ahmad.Faruqui_at_Brattle.Com