Dynamic pricing: the opinions are in

Readers react to notion of tying prices to costs

Phil Carson | Aug 16, 2012


The conversation of the month, not counting Wednesday's donnybrook over the power industry's response to absurd misinformation about smart meters, is really about dynamic pricing. 

Of course, it probably didn't help that I made last week's subhead claim that one set of facts = "the facts." As in, "Dynamic Pricing: The Facts Are In."

I heard from critics who said I must be taking money from somewhere in bringing Ahmad Faruqui's data and arguments pertaining to dynamic pricing to your attention. I did mention in the article, however, that he was invited to address the National Association of Regulatory Utility Commissioners (NARUC), whose members wanted to inform themselves, but that did not sway detractors. No worries; goes with the territory. 

Perhaps Faruqui's argument was too effective or too thorough. After all, walking through just a few key points in one of the most important issues in civilian power required three columns in a row. Those included "Dynamic Pricing: The Facts Are In, Part II" and "Dynamic Pricing: The Facts Are In, Part III."

I'd guess the audience was lucky I didn't give in to my James Michener tendencies. In any case, we received a number of thoughtful critiques and comments on Faruqui's facts and arguments, so we'll share three of those here today. It's critical that such an important topic get a bit more air.  

First up, John Cooper of NextWatt Solutions and co-author with Andres Carvallo of "The Advanced Smart Grid: Edge Power Driving Sustainability."  

"In the simplest analysis, the regulatory challenge is to find a path between hewing to the old ways of thinking and complete deregulation," Cooper wrote to us. "I would suggest the range of middle-way options lie in giving customers more control with energy information feedback, and more choice with options to act on that feedback. What Ahmad presented is highly logical and is backed up by real data. This shouldn't be new to NARUC. The challenge for groups like NARUC is to step out to apply such ideas in real-world applications, ideally with new rate models that individual regulatory bodies may use for individual cases as they come up."

Jack Ellis, consulting engineer and prolific forum participant (bless him), had some cogent remarks to make, amid a slew of anonymous comments that, shall we say, offered anecdotal antagonism towards Faruqui's presentation. 

"First, THE cause of low and declining load factors is air conditioning use," Ellis wrote. "Daily load factors are typically in the low 80 percent range. It's the summer spikes due to air conditioning (or in a few places, winter spikes due to extreme cold) that drive the need for electric generating capacity.

"Second, one way to shift demand is by cooling structures at night using air conditioning or ventilation.  This is the same principle upon which adobe homes are built in places like Arizona and New Mexico.  Research shows it can work equally well in California.  Of course, having lower electricity prices at night than during the day would make this strategy a lot more economically attractive.

"Third, the whole point behind dynamic pricing is to match up what people pay for electricity with when they use it. If we didn't have more than 100 studies that show consumer benefits, I'd have to agree with the naysayers, but in fact study after study (in other words, hard data rather than speculation) shows that consumers not only adapt, they're generally more satisfied.

"Dr. Faruqui isn't the only one who has proposed some form of dynamic pricing. Others have suggested variations that allow consumers to try dynamic pricing out with shadow bills or bill protection or other mechanisms that protect them in case they're adversely affected.

"I haven't had an air conditioner since I left the South 30 years ago . " Ellis concluded. "So even though I probably can't take any better advantage of dynamic pricing than less well-off folks because my load is pretty flat, I'm all for it.  The sooner, the better."

Lastly, someone from the Smart Grid Consumer Collaborative posted anonymously in support of Faruqui's work. 

"I think Ahman Faruqui's dynamic pricing information is spot on and of course, we at Smart Grid Consumer Collaborative (SGCC) agree with him that utilities should begin to work towards understanding customer preferences through customer segmentation and segment-specific messaging," our forum participant wrote.

"Once consumers understand what the smart grid is and the benefits it provides, our research shows broad support for implementation. I think we all can agree that dynamic rates could provide customers with greater choice for managing their energy costs as they inevitably rise.

"SGCC's recent Consumer Pulse and Segmentation research program identified five main segments of consumers with three of the segments immediately interested in smart grid programs and services," our correspondent concluded. "Every population segment has opportunities for engagement, however. Our findings highlight the specific messaging to appeal to each of these segments."

As I combed through the comments in the forums under the three installments about dynamic pricing, I was disappointed not to find substantive, data-based rebuttals. Lots of dark suspicions, accusations and ad hominem attacks, but little to present here as legitimate objections. Would someone please step up and present a credible, alternative view backed by bona fide studies? I'd like to feature it. 

Phil Carson 
Intelligent Utility Daily



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TOU sucks in the summer!

I live in Las Vegas.  I have clocked 119 degrees F in the shade, in my back yard.  Everyone knows that the single largest use of electricity in their home, is running the A/C.  I already pay through the nose to cool to 78 degrees.  I could save a little money to raise the thermostat to 82, and SWEAT.  Sorry, if I already pay a fortune, I might as well pay a bit more to at least be comfortable.  It's like going out to dinner at a restaurant with so-so food to save a few bucks, or going to your favorite restaurant, paying more, and knowing you are going to love your meal.

Enter TOU pricing.  This might be great for someone who has two homes, and spends summers at their cool mountain retreat, while their Las Vegas home stays vacant.  I don't have that luxury, I live in Vegas year-round and it is brutal.  Even more brutal would be having TOU forced on me.  I program my thermostats to keep my house several degrees warmer while I am at work.  You can't keep it too warm, because you end up having to cool walls, furniture, carpeting, etc. when you come home.  It makes no sense.

I spend part of my workday outdoors, in the heat.  Believe me, I want to come home to a comfortable house at the end of the day.  Unfortunately, that happens right in the middle of "peak" from 1-7 pm.  What about older people, who are home during the day?  Or people working swing or graveyard shift?  This is a 24-hour town.  You can't expect them to sleep during the day, in sweltering heat.  There is a reason I chose to buy a house with gas water heating, gas for clothes drying, and gas for heat in the winter.  My stove burners are also gas.

So far, I have managed to avoid having a "smart meter" placed on my house, but not without a fight.  I simply am not interested in obsessively monitoring my electricity usage every 15 minutes.  I am smart enough to figure out that when the A/C and pool pump are running, I'm using a lot of juice!  And, who is stupid enough not to realize that if you use your electric oven, or dry a load of laundry (even with a gas dryer), it heats up your house?

Don't waste my money analyzing my private activities.  Give me some credit for using my brain.  Incidentally, I was bright enough to install dimmer switches for some of the rooms in my house, so that all those lights they put in bathrooms aren't so bright.  Along came those asinine CF bulbs.  THEY DID NOT WORK WITH MY DIMMER SWITCHES.  Who was the dim bulb who put those on the market?

Wendy Ellis, Las Vegas

Dynamic pricing - it's about time

Of all the consumer products we purchase, only electricity and water are we allowed to pay for after the fact, and at one set price for an entire month.  Anyone  that deals with electric power production knows that the cost to deliver a kWh of energy varies significantly over the course of a month.  Implementing dynamic pricing is the right thing to do, as we finally (with AMI) have the means to properly track and charge for energy delivered based on the cost to produce it.  Flat rate pricing is not equitable pricing, it is subsidy pricing.