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Low Income Consumers Benefit from Dynamic Pricing

Low-income energy consumers have a strong motivation to cut their utility bills. But can they respond effectively to dynamic energy prices in order to reduce their peak load and save money? Yes they can, according to a new report from the Edison Foundation Institute for Energy Efficiency…

The Impact of Dynamic Pricing on Low Income Customers summarizes five studies of how variable and dynamic electricity prices affect residential and low-income customers. This report includes the results of the PowerCentsDC final report released Sept. 9.

The conclusion: Low-income customers do respond to dynamic rates by shifting load. But the report also shows that even when low-income customers take no demand response action, a large percentage of them still save money under dynamic rates. This is because their load profiles tend to be flatter than average.

This is a good report, and I agree with most of it. However, I disagree that a large percentage of low-income customers will always benefit from dynamic pricing. Specifically, I’m talking about the peak time rebate (PTR) approach to dynamic pricing.

Unlike other types of dynamic pricing, a PTR baseline must be calculated for each individual customer. Therefore, low-income customers on PTR won’t automatically save money — even though they usually have lower on-peak usage.

However, the advantage of PTR pricing is that it guarantees that low-income customer will never pay more for energy. Under PTR, bills are calculated by applying the standard rate minus a rebate amount. Of course, there is a risk that a customer may fail to earn a rebate.

Opinions about PTR’s benefits vary. The personalized baseline approach of PTR can be viewed as a benefit, since it does not automatically create “structural winners” (people who save money simply by changing to dynamic pricing, without reducing peak load). But why shouldn’t consumers who start off with low on-peak demand reap rewards for being more efficient?

There definitely are public policy arguments on both sides of that issue!