2001 Western 2001 Western Conference of Conference of Public Service Public Service

CommissionersCommissioners

Real-Time Electricity Pricing in Regulated Real-Time Electricity Pricing in Regulated and Non-Regulated Environmentsand Non-Regulated Environments

Monday, June 4, 2001 Monday, June 4, 2001

William S. WeaverWilliam S. WeaverPresident & Chief Executive OfficerPresident & Chief Executive Officer

Rationale for Real-Time PricingRationale for Real-Time Pricing Failure to give end-use electric customers Failure to give end-use electric customers

proper price signals encourages:proper price signals encourages: Wasteful use of energyWasteful use of energy Unnecessary high costsUnnecessary high costs Bad habitsBad habits

Giving proper price signals results in:Giving proper price signals results in: Efficient use of energyEfficient use of energy Lower costsLower costs A sustainable energy ethicA sustainable energy ethic

Annual Costs Avoided by Implementing Annual Costs Avoided by Implementing Real-Time Pricing in the United StatesReal-Time Pricing in the United States

$5.5

$7.9

Large C&I (37% of Total)

Small/Medium C&I (10% of Total)

Residential (53% of Total)

Source: Chartwell; Frost and Sullivan; RDI; McKinsey Analysis

$14.8 Billion

$1.4

Reducing Demand by 10% Lowers the Reducing Demand by 10% Lowers the Marginal Cost by 25%Marginal Cost by 25%

Source: Brattle Group

Price

Demand

Wholesale Supply Curve

D' D

Real-Time Pricing Requires Integrating Several Key Technologies

RealTimePricingData

RealTimeUsageData

ConsumerLinXConsumerLinX(Customer Information

System)

Portal

Matching Current Use With Real-time Pricing

Success in the Distribution BusinessSuccess in the Distribution Business

Best ServiceBest Service ReliabilityReliability Customer choiceCustomer choice Customer Customer

convenienceconvenience

Lowest CostLowest Cost Utility cost Utility cost

reductionsreductions Revenue from Revenue from

others to offset utility others to offset utility costscosts

Best Service: ChoiceBest Service: Choice

Price / Supplier / Fuel choices Billing options Payment options Additional service choices

– Outage / leak / flood alert– Usage alert– Remote load control– Tailored supply programs

Best Service: ConvenienceBest Service: Convenience One consolidated bill Payment convenience Internet / phone access to

account and usage information Remote load control Internet / phone access to

real time outage / restorationinformation

Remote disconnect / reconnect

Lowest Cost: Utility Cost ReductionsLowest Cost: Utility Cost Reductions Meter reading (scalable) Billing (scalable) Payment/cash processing (scalable) Supply costs Disconnect/reconnect costs Targeted distribution system capital

and maintenance program Outage restoration costs System planning and operations

Lowest Cost: Utility Revenue EnhancementLowest Cost: Utility Revenue Enhancement

Provide services to others, leveraging technology investments and utility experience: Network wireless meter reading,

products and services Call center services Web-based customer services Billing services Payment processing services

Personal Energy Management Personal Energy Management InformationInformation

Education and promotionEducation and promotion Electric-only customersElectric-only customers 412,000+ customers (residential & 412,000+ customers (residential &

commercial)commercial) 4-month timeframe4-month timeframe Initially informational (not billing)Initially informational (not billing) Enable customer to access potential Enable customer to access potential

savingssavings Four-block pricingFour-block pricing Survey customer and modify if necessarySurvey customer and modify if necessary

PEM Survey MethodPEM Survey Method

Telephone interviews by Market TrendsTelephone interviews by Market Trends 809 Residential respondents809 Residential respondents 619 Business respondents619 Business respondents Fielded March 22 - April 11, 2001Fielded March 22 - April 11, 2001

Major Findings of PEM SurveyMajor Findings of PEM Survey

Customers believe the NW faces an Customers believe the NW faces an electricity shortage that will get worse electricity shortage that will get worse this summerthis summer

High level of program awarenessHigh level of program awareness Most customers have taken some Most customers have taken some

actions to change energy useactions to change energy use Residential customers more receptive Residential customers more receptive

than Business customersthan Business customers Low level of Website usageLow level of Website usage

Awareness of PEM ProgramAwareness of PEM Program

47%

21%

44%

51%

0%10%20%30%40%50%60%70%80%90%

100%

Residential Business

PromptedTop-of-Mind

91%

72%

Most Important Thing that Customers Most Important Thing that Customers Concluded from PEMConcluded from PEM

33%

26%

21%

9% 8%5%

8%

23%

34%

6%

17%

10% 10%

14%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Need t

o con

serve

energ

y

How en

ergy u

sed by

TOD

Need t

o shif

t to o

ff-pe

ak

How to

save

/shift

energ

y

PSE's co

sts va

ry by

TOD

Will

save m

oney

Not lea

rned a

nythi

ng

ResidentialBusiness

Steps Taken by Customers After Steps Taken by Customers After Reviewing PEM InformationReviewing PEM Information

59%

38%

3%

79%

49%

21%

5%

70%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Discuss withfamily/employees

Discuss outsidehome/business

Contact PSE for moreinfo.

Take actions to alterenergy use

ResidentialBusiness

Actions Taken by Customers to Manage Actions Taken by Customers to Manage Energy UseEnergy Use

43% 41%

4%1% 1%

16%20%

4%

45%

6%1% 0%

16%

37%

0%5%

10%15%20%25%30%35%40%45%50%

ResidentialBusiness

How PEM Has Changed Customer How PEM Has Changed Customer Opinions of PSEOpinions of PSE

8%19%

71%

1% 1%3%14%

81%

2% 1%0%

10%20%30%40%50%60%70%80%90%

ResidentialBusiness

Personal Energy Management PricingPersonal Energy Management Pricing

Approval: Approval: April 25, 2001 - Washington Utilities and April 25, 2001 - Washington Utilities and

Transportation Commission approved Transportation Commission approved PSE’s time-of-use rate proposal. PSE’s time-of-use rate proposal.

Strategy:Strategy: Give customers information and tools to Give customers information and tools to

better manage energy usage and costsbetter manage energy usage and costs Provide financial incentive for using off-Provide financial incentive for using off-

peak electricitypeak electricity

Personal Energy Management PricingPersonal Energy Management Pricing

Eligibility:Eligibility: Time-of-day rates apply to the 300,000 Time-of-day rates apply to the 300,000

residential customers already receiving PEM residential customers already receiving PEM informationinformation

Customers can opt-out of the program by Customers can opt-out of the program by calling PSE’s customer service linecalling PSE’s customer service line

Duration:Duration: Pilot program running from May 1, 2001 to Pilot program running from May 1, 2001 to

September 30, 2001September 30, 2001

Personal Energy Management PricingPersonal Energy Management Pricing

Pricing:Pricing: Rates separated into two Rates separated into two on-peakon-peak and and

two two off-peak off-peak blocks of timeblocks of time Midday price block is set to PSE’s Midday price block is set to PSE’s

current residential fixed ratecurrent residential fixed rate

Note that this customer’s use is Note that this customer’s use is primarily in primarily in expensiveexpensive time periods time periods

Customers on Customers on the pilot get the pilot get personal online personal online reports of reports of energy use. energy use.

(Other customers (Other customers also get also get information)information)

But, after a But, after a few weeks...few weeks...

Web CapabilitiesWeb Capabilities

05

101520253035404550

Fri Sat Sun Mon Tues Wed Thu

Usa

ge (K

Wh)

Expensive (6am to 10 am )

Economy (10am to 5pm)

Expensive (5pm to 9pm)

A Bargain (9pm to 6am)

7 Day Prior Usage Chart

This customer has This customer has shifted use to a shifted use to a more more regularregular pattern – reducing pattern – reducing the need for PSE the need for PSE to buy from more to buy from more expensive, expensive, less efficient less efficient generation sourcesgeneration sources

05

101520253035404550

Fri Sat Sun Mon Tues Wed Thu

Usa

ge (K

Wh) Expensive (6am to 10 am )

Economy (10am to 5pm)

Expensive (5pm to 9pm)

A Bargain (9pm to 6am)

7 Day Prior Usage Chart

am

05

101520253035404550

Fri Sat Sun Mon Tues Wed Thu

Usa

ge (K

Wh) Expensive (6am to 10 am )

Economy (10am to 5pm)

Expensive (5pm to 9pm)

A Bargain (9pm to 6am)

7 Day Prior Usage Chart

am

Web CapabilitiesWeb Capabilities

Home Comfort Control PilotHome Comfort Control Pilot

To manage load, utility sets back To manage load, utility sets back household thermostats; households can household thermostats; households can override the setback or receive paymentoverride the setback or receive payment

Across 10 weeks, 104 volunteer Across 10 weeks, 104 volunteer households in Kent, Washington households in Kent, Washington experience 45 random two-hour experience 45 random two-hour setbackssetbacks

Purpose

Premises AutomationPremises Automation

Programs build on Home Comfort pilotPrograms build on Home Comfort pilot Next generation technologyNext generation technology Multiple pilots in 2001Multiple pilots in 2001 Production deployment 4th quarterProduction deployment 4th quarter

www.pse.com