1. Load Impacts And Marketing Effectiveness from The Countrys Largest Dynamic Pricing Program Load Impacts And Marketing Effectiveness from The Countrys Largest Dynamic Pricing Program National Town Meeting on Demand Response and Smart Grid Stephen S. George Freeman, Sullivan & Co. June 23-24, 2010

2. PG&Es SmartRate tariff has the highest enrollment of any dynamic tariff in the country There were roughly 25,000 active customers at end of summer 2009 A time varying rate on event days only Overlay of surcharges and credits on top of the standard five-tier, increasing block tariff (E-1) E-1 prices vary with usage and block sizes vary by climate zone SmartRate has a 60 ¢/kWh adder from 2 to 7 pm on up to 15 event days each summer Price ratio varies depending on what rate tier you are in SmartRate customers also enrolled in load control program (SmartAC) can have air conditioner cycled on SmartRate days Page 1

3. PG&Es residential tariffs are complex CARE stands for California Alternative Rates for Energy CARE provides lower rates for qualifying low income customers Page 2

4. Average SmartRate Load Impact for 2009 Average Impact Per Customer 0.31 kW 14.9% Average Reference Load and Load Impact Across 15 SmartRate Days Page 3

5. A relatively small % of customers provide large load reductions Page 4

6. PG&E tried a variety of marketing strategies for SmartRate which allowed us to determine the relative effectiveness of various marketing options Page 5

7. A model was developed to determine the likelihood of enrollment as a function of marketing features and customer characteristics MARKETING FEATURES Sign up incentive Number of touches Timing (seasonal) Message Format Enabling technology CUSTOMER CHARACTERISTICS Annual energy use Likelihood of A/C ownership CARE Census block group variables Energy efficiency rebate When using the features tied to customer characteristics, its important to recognize that not all characteristics are independent of each other Page 6

8. A modest marketing incentive can make a very significant difference in enrollment rates KEY ASSUMPTIONS No Enabling Technology 30% CARE 50% Central A/C Incentive Offered on All Three Touches 1 st Touch Pre-summer 2 nd Touch Early Summer 3 rd Touch Late Summer #10 Letter With Business Reply Envelope Multilingual Letter Page 7

9. Sending second and third direct mail pieces to the same customer increases enrollment KEY ASSUMPTIONS 1 st Touch Pre-Summer 2 nd Touch Mid-Summer 3 rd Touch Late Summer No Enabling Technology 30% CARE 50% Central A/C $25 Incentive on Each Touch #10 Letter With Business Reply Envelope Multilingual Letter The marketing hit rate falls with each touch but cumulative enrollment grows Page 8

10. The timing of the marketing campaign matters KEY ASSUMPTIONS Single Touch No Enabling Technology 30% CARE 50% Central A/C $25 Incentive #10 Letter With Business Reply Envelope Multilingual Letter Customers are more likely to sign up before the summer begins than in mid- or late summer Page 9

11. Offering a dynamic rate to customers that already have a load control device that can be used to automate response has a dramatic impact KEY ASSUMPTIONS Single Touch Pre-Summer Marketing 25% CARE 73% Likelihood of Owning Central A/C $25 Incentive #10 Letter With Business Reply Envelope Multilingual Letter Page 10

12. Whether you use a standard letter or a glossy brochure influences enrollment, with the former more effective than the latter KEY ASSUMPTIONS Single Touch No enabling technology Pre-Summer Marketing 30% CARE $25 Incentive 50% Likelihood of Owning Central A/C Multilingual Letter Page 11

13. Customers who own central air conditioning are less likely to enroll in dynamic tariffs KEY ASSUMPTIONS No Enabling Technology Pre-Summer Marketing $25 Incentive #10 Letter With Business Reply Envelope Multilingual Letter Other Customer Characteristics Vary Significantly Across A/C Ownership Likelihood Page 12

14. Key conclusions Marketing matters Customer enrollment varies significantly with variation in the features, timing and targeting of the marketing offer A modest incentive dramatically improves enrollment based on direct mail, but doubling or tripling the incentive has a small incremental effect Take rates for customers that are already enrolled in a load control program are dramatically higher than for customers that are not in a load control program The timing of your market offer impacts enrollment Customers that you most want to enroll (those with central air conditioning) are the hardest to attract Page 13

15. Page 14 For questions, please contact Stephen S. George Principal Consultant, Director Energy Practice Freeman, Sullivan & Co. 101 Montgomery Street 15 th Floor San Francisco, CA 94104 stephengeorge@fscgroup.com 415 948-2328