In a March 16 webinar, the chairs of two state public utility commissions gave their views on dynamic pricing. Both believe dynamic pricing is a key ingredient to unlocking smart meter value for consumers.

Here’s why…

Orjiakor Isiogu (chair of the Michigan Public Service Commission) and Garry Brown, (chair of the New York State Public Service Commission) agreed that dynamic pricing can help avoid capital investment in expensive peak power plants. It also can permanently alter consumer electricity habits: it allows customers to take advantage of lower off-peak prices, and helps them understand that electricity costs more on hot summer afternoons.

In the webinar, Isiogu and Brown raised several points around the introduction of dynamic pricing:

• Transparency and trust are needed.
• There is a risk of consumer growing pains and anxiety.
• Customer education is important.
• Consumers don’t need automated devices to benefit from dynamic prices — although that does increase savings.
• Dynamic pricing can include prepayment, time-of-use, off-peak electric vehicle charging, and real-time pricing. (In RTP, prices are set each hour, which is how wholesale markets work.)
• Bill protection (“shadow billing”) is a way to phase in dynamic pricing. This means that consumers are placed on the new prices, but guaranteed not to have a higher bill for the first year.

I would add that there have been over 100 dynamic pricing pilot programs in the US. In follow-up surveys, 80% of the customers prefer the new prices to their old rates.

For instance, in PowerCentsDC (which I ran with Potomac Electric Power Co., DC Public Service Commission, the Consumer Utility Board, the Office of People’s Counsel, and the International Brotherhood of Electrical Workers — and which the chairs mentioned), 93% of participants preferred dynamic pricing.

And in Arizona, over half a million residential customers have freely chosen time-of-use rates — 35% of the total residential population for Arizona Public Service and Salt River Project.

Customers don’t fear dynamic pricing. They understand it and use it in many other parts of their lives — from parking meters to cell phones to airline tickets. What they fear is mandatory dynamic pricing.

Dynamic pricing should always be voluntary.

Besides dynamic pricing, the chairs also discussed more strategies to help consumers realize benefits from smart meters. Enhanced power usage information, automated thermostat control, and (ultimately) appliance control also hold considerable potential.