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Shock: KEMA Says Expanded Hourly Pricing "Cannot Reasonably be Recommended" at ConEd
May 2, 2012
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Copyright 2010-
An expansion of mandatory hourly pricing (MHP) default service at Consolidated Edison, "would only burden these [new MHP] customers and the rate base with additional interval metering cost," and, "cannot reasonably be recommended," KEMA, Inc. said in an evaluation of the current MHP program prepared for ConEd.
The current hourly pricing cutoff is 500 kW.
"The analysis indicates that the MHP program has failed to impact the overall electrical usage pattern of the full service customers exposed to the rate or retail access customers given access to their usage information. Extending MHP to customers with bill demands over 300 kW would only burden these customers and the rate base with additional interval metering cost. Therefore, expansion of the MHP program cannot reasonably be recommended," KEMA said.
"Given that MHP has failed to demonstrate any effectiveness at reducing peak load with the larger customers in the Con Ed service territory that are the best equipped to reduce load," KEMA said that, "there is not a compelling economic or operational rationale to pursue expansion [of MHP] to smaller customers."
ConEd informed the PSC that it, "agrees with this recommendation."
If KEMA's recommendation were adopted, it would reverse longstanding PSC precedent which has seen, with little and at times no controversy, the steady expansion of hourly pricing at various utilities -- including to levels as low as 300 kW and 250 kW, with PSC Staff recommending as recently as December 2011 (and agreed to in a pending joint proposal) the lowering of the MHP threshold to 100 kW at Orange & Rockland, a ConEd affiliate.
KEMA said that its evaluation determined that MHP, "had minimal impact on energy usage." KEMA's price elasticity modeling analysis estimated a difference in energy usage for all full service customers of less than 0.2% of the total energy subjected to MHP prices. The cost comparison estimated that the average participant bill was approximately 0.7% higher than what would have been paid if they were not on hourly pricing and were paying alternative rates for energy. "Considering the minimal impact on energy use, the differences between MHP prices and alternative rates may not be substantial enough to influence full service customers to change their energy usage and demand patterns. In addition, for customers who stated that they have the ability to reduce energy during high price periods, the data analysis showed no significant difference between the estimated energy use with MHP and without MHP," KEMA said.
"The interval load data analysis determined that the off-peak energy use for the full service customers decreased slightly from 51.2% of the total annual energy use in 2009 to 50.9% in 2011. This is an indication that overall, customers are not exhibiting behavioral changes in reaction to price. In effect, customers are using slightly more of their energy during on-peak periods than they were in 2009," KEMA said.
"MHP has shown no material effect on the load shape of the participating customers. This suggests that in terms of promoting customer response to hourly price signals, to date, the MHP rate has not succeeded. There is little evidence in this or the previous evaluation in support of MHP as an effective tool for allowing the remaining default full service customers to modify their demand and energy usage in response to the hourly prices. Given that only 15% of the MHP-eligible customers are taking service on the MHP rate, the cost effectiveness of the current strategy is questionable," KEMA said.
"MHP customers have been resistant to establishing a threshold price level as a criterion to reduce load. Two survey respondents from the previous evaluation (2009) indicated a threshold price of about $0.20/kWh before they would consider reducing load. From 2009 through 2011, the day-ahead energy price has exceeded $0.25/kWh for a total of 10 hours. All ten hours occurred during 2011 and the prices were between $0.25/kWh - $0.30/kWh. A threshold price of $0.20/kWh - $0.25/kWh represents about four to five times the mean day-ahead energy price of $0.048. Given the low number of hours and small potential energy savings, it is not difficult to understand why participants have not responded to MHP," KEMA said.
Though KEMA called the findings consistent with prior findings, the instant evaluation, which is the only analysis to include 500 - 1,500 kW customers who were newly introduced to MHP, only covered the period 2009-2011 -- a period marked by the recession, low natural gas prices, and, accordingly, relatively low on-peak prices with comparatively low volatility.
KEMA said that there are 1,406 additional customers with demand >300 kW to 500 kW, who are the most likely customers that would be included if the MHP rate structure were expanded. Approximately 1,016 (72%) are already retail access customers. "Accordingly, if this customer group were required to take MHP service after the interval meters are installed, at most 390 customers (28%) would be served under the MHP rate. Past experience shows that a portion of these customers would also migrate to retail access," KEMA said.
"In fact, if migration patterns are consistent with previous MHP expansion, about two thirds of the new MHP customers could be expected to migrate to alternative energy suppliers within six months of being switched to MHP. Accordingly, there is not a compelling economic or operational rationale to pursue expansion to smaller customers," KEMA said.
Of those customers remaining on MHP, when asked why they had not switched to an alternate energy supplier (ESCO), about a third (32%) indicated that they did not know, another 32% either had a mistrust of ESCOs or did not like the prices offered, and another 25% indicated that they had a lack of viable options, KEMA reported.
Copyright 2010-
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