January 20, 2004 California’s Statewide Pricing Pilot Larsh Johnson – President and Chief Technical Officer, eMeter Sanjoy Chatterjee – Principal, Chatterjee Associates

2 © eMeter Corporation 2004 Agenda History of small customer dynamic pricing Overview of California Statewide Pricing Pilot Statewide Pricing Pilot results to date

3 © eMeter Corporation 2004 The Goal of Dynamic Pricing Avoid the need to construct additional peaking power plants or to make expensive wholesale power purchases during price spikes Top 1% of the hours in PJM Top 10% of demand Top 90% of prices

4 © eMeter Corporation 2004 How Is Residential Load Distributed? Back to publication Source: Florida Solar Energy Center Annual consumption by major end use

5 © eMeter Corporation 2004 How Much Does Residential Load Contribute to Peak? Source: California Energy Commission

6 © eMeter Corporation 2004 History of Dynamic Pricing – Small Consumers 1957Steiner academic paper on “Peak Loads and Efficient Pricing” 1960s Time-of-use rates begin in Europe, growing to large scale 1970sFirst time-of-use rate experiments in U.S. 1980s A few larger time-of-use rate programs as metering costs begin to decline (Arizona Public Service, Salt River Project, Pacific Gas & Electric) 1985First integrated critical peak pricing + automated response experiment in U.S. (Southern Company) 1992First CPP program without automated response (Electricite de France) 2000First regular CPP + automated response program (Gulf Power) 2003First experiment testing CPP with and without automated response (California Statewide Pricing Pilot) and first residential hourly pricing program (Chicago Community Cooperative)

7 © eMeter Corporation 2004 Residential Dynamic Pricing Results: Price Elasticity –Fifty-six analyses and projects in the past 25 years –Average of -0.3 own-price elasticity Equals 30% usage reduction for 100% price increase (off-peak to peak) –California’s pilot providing one more data point Residential Own-Price Elasticities Recorded in Experiments/Programs More peak demand reduction Average result =-0.30 California data U.S./international data Source: King and Chatterjee, Public Utilities Fortnightly, July 1, 2003

8 © eMeter Corporation 2004 Residential Dynamic Pricing Results: Peak Demand Reduction –Results of 30 residential time-of-use and critical peak pricing programs –Results expressed as a percentage of customer’s total demand under non-time-based pricing Average reduction 24% More peak demand reduction

9 © eMeter Corporation 2004 Response on Different Day Types Very hot day Average day Cool day –Graph of the difference between participants and control customers Usage above the blue line is increased use resulting from time-of-use rates Usage below blue line is reduced use Control customers Peak hours Off peak hours Source: Dennis Aigner and Lee Lillard

10 © eMeter Corporation 2004 Conservation Effect of Dynamic Rates –Payback or pre-cooling occurs for some end uses, such as air conditioning –No payback for other end uses, such as turning off lights –On average, there is net conservation in dynamic pricing programs Average reported conservation in 16 time-of-use and critical peak pricing programs was 4.0% – i.e. Gross reduction ( ) less payback and pre-cooling ( ) = 4.0% kW 1 24 Pre-cooling Hour of Day 12 Peak hours Payback Peak reduction

11 © eMeter Corporation 2004 California Statewide Pricing Pilot – Background California joint agencies demand response proceeding –PUC, Energy Commission, and Power Authority –Rulemaking , begun June 2002 –Establishing state policies for advanced metering and demand response Goal: avoid a repeat of the 2001 Energy Crisis Source: Mike Messenger, California Energy Commission Projected Reserve Margins Rolling Blackouts

12 © eMeter Corporation 2004 California Rulemaking Progress Three subgroups –WG1: Policy –WG2: Large customer programs (>200 kW) –WG3: Small commercial and residential programs Decisions to date –Mar 2003: Adopted statewide goal of meeting 5% of peak demand via dynamic pricing by 2007 –Jun 2003: Established regular dynamic pricing tariffs for large customers –Jun 2003: Ordered implementation of Statewide Pricing Pilot –Nov 2003:Ordered development of business case methodology, including utility filings due March 31 regarding 2004 activities to meet 2007 goal

13 © eMeter Corporation 2004 Statewide Pricing Pilot Overview Statewide –Pacific Gas & Electric, San Diego Gas & Electric, and Southern California Edison –Sample of 2,500 customers statistically representative of the entire state –Residential and small commercial customers Goals –Measure peak demand reductions –Measure total consumption reductions –Assess customer preferences via participant experiences and market surveys Customers put in three primary treatment groups –Time-of-Use (TOU) Peak (2-7 pm weekdays) and off-peak Peak to off-peak price ratio about 2:1 –Critical Peak Pricing-Fixed (CPP-F) Peak (2-7 pm weekdays) and off-peak Much higher price – about 5x higher – during critical peak period (2-7 pm) on up to 15 days a year, with day-ahead notification –Critical Peak Pricing-Variable (CPP-V) Three differences from CPP-F – Critical peak period varies from 1 to 5 hours from 2-7 pm – Notification varies from day ahead to 4 hours ahead – All customers have smart thermostat programmed for automated response

14 © eMeter Corporation 2004 Critical Peak Pricing Rates Off-Peak Peak (2-7 pm) Critical Peak (2-7 pm) Critical Peak Notification to Customer (by 5 p.m.)

15 © eMeter Corporation 2004 Monthly Bill Summary

16 © eMeter Corporation 2004 CPP With Automated Response Technology provided to all CPP-V customers –Both residential and small commercial Outbound paging signal to thermostat Thermostat automatically adjusted up 4 degrees during critical peak hours Curtailment Signal Interval Meter Thermostat Status, Override Load Data Source: Karen Herter, California Energy Commission

17 © eMeter Corporation 2004 Statewide Pricing Pilot Results - Residential Rates went into effect July 1, events called during summer 2003 Analysis by Charles River Associates (contractor to joint utilities) completed January 16, 2004 (draft report; final data may differ) Performance MeasureAverage from the Literature California SPP Result Price elasticity (mean own price)-0.30CPP-F: CPP-V: TOU: Peak demand reduction – TOU20%24% Peak demand reduction – CPP without automated response 24%20% Peak demand reduction – CPP with automated response 44%49% Total usage reduction (conservation effect) 4%CPP-F: 6% CPP-V: 28% TOU: 9%

18 © eMeter Corporation 2004 Statewide Pricing Pilot Results – Small Commercial Same schedule and events as residential Small commercial groups did not include CPP-F Literature for small commercial is extremely limited Performance MeasureCalifornia SPP Result Price elasticity (own-price)(Still being analyzed) Peak demand reduction – TOU15% Peak demand reduction – CPP with automated response 67% Total usage reduction (conservation effect) (Still being analyzed)

19 © eMeter Corporation 2004 Conclusions and Next Steps California results consistent with the literature Other states can learn from this rich body of data and research, including California’s pilot and hundreds of other pilots around the country Does demand response make AMI cost-effective? –California’s PUC estimates of long-term value Demand: $85 per kW-year, the levelized cost of a peaker plant Consumption: 6.6 cents per kWh –Advanced metering costs about $12 per customer-year more than electromechanical metering, once utility meter reading savings are deducted –Result: Benefit-Cost Ratio of 3.7 for residential customers Next steps in California’s rulemaking –Develop detailed business case methodology –Proposals filed last Friday, January 16 th –Utilities will file rollout applications, including business cases, later this year

20 © eMeter Corporation 2004 Epilogue “The essence of knowledge is, having it, to apply it.” – Confucius