Study: Voluntary programs, flexible pricing important for demand response

SNL Energy
Tuesday, June 19

By JP Finlay

Making programs voluntary and offering flexible pricing options to consumers will help lead to successful adoption of demand response programs, according to a new case study by the Association for Demand Response & Smart Grid, or ADS.

The case study, released June 19, centered on interviews with employees and customers of the Salt River Project. ADS said it chose the Arizona utility for the case study because of its track record of successful pricing programs and previous pricing experience.

The case study follows the National Action Plan on Demand Response, published by FERC in June 2010, which called for the development of case studies that would illustrate lessons learned. In July 2011, FERC and the U.S. Department of Energy made clear the need for a public-private coalition to coordinate the demand response efforts of government officials, industry stakeholders and other interest groups.

"SRP's work was seen as something that would contribute to the discussion around the nation on issues such as the persistence of time-based pricing and whether consumers react favorably to having more pricing options," ADS Executive Director Dan Delurey said in a statement.

Results from the case study identified four primary lessons learned from SRP's efforts. The first lesson was that demand response programs should be voluntary for consumers and programs should include an opt-out for customers that change their minds "at any point." The processes for demand response should be easy and pleasant and not onerous, according to the case study.

The second lesson was that companies should offer pricing programs that encourage people to develop new habits and routines in line with daily schedules. "One of the key rationales for investing in smart grid and meters is to offer consumers pricing that more accurately reflects true costs in order to encourage a flatter system-wide load leading to greater reliability and cost mitigation," the study said. "Many pricing pilots have indicated that consumers respond to price signals, especially when enabled by automation, yet reservations and fears remain that the public will reject time-based pricing or that behavior changes will not persist."

The study said that fears of the public rejecting price signals have little factual support. "When measured, there seem to be consistently high satisfaction rates among those consumers who have experienced dynamic pricing and prepay programs," the study said. "While no empirical evidence exists to the contrary, a significant number of consumer advocates, regulators, and others remain skeptical."

The third lesson was that prepay options should be available to all customers. "Offer prepay to everyone, not just customers with credit issues. Students, seasonal residents and people who are paid on a weekly basis see definite cash flow benefits," the study said. "Do not apply service charges per payment, regardless of the frequency or amount of payments."

The fourth lesson was that tools and customer service support should also be available to consumers to figure out the best demand response programs to fit with their lifestyle. A combination of interactive research information, secure rate comparisons and customer service support will let customers determine their best options for demand response in their home and let utilities achieve broader adoption and participation in demand response programs, the study said.

The study also found that deployment of smart meters can let utilities build from an "existing platform of trust and customer satisfaction, introduce new pricing programs that can appeal to more customers, and allow them to potentially achieve greater cost savings."

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