20020522Comments.pdf

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
May 21, 2003
In the Matter of the Investigation
Of Time Of Use Pricing For Idaho,
Power Residential Customers
Case No: IPC-02-
Response to Order No. 29196
Time-of-Use Rates
Response to Order No. 29226
Notice of Public Workshop
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Filed on Behalf of the Citizens, State of Idaho
BY:
Tom D. Tamarkin
2737 Eastern Avenue
Sacramento, California 95821
916-482-2000
Patrick R. Clifford
5132 Montecito Place
Boise, Idaho 83740
208-323-4201
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COMES NOW before the State of Idaho Public Utilities Commission, Messieurs
Patrick R. Clifford of Boise, Idaho (rate payer) and Tom D. Tamarkin of Sacramento,
California (industry expert,) who do hereby request, declare, and note for the record:
In informal testimony presented to the PUC during the Public Workshop
held May 19,2003 regarding the above captioned matter by the Idaho Power Company,
it is apparent that the cost figures for the proposed communicating meters and various
communication network systems related components for deployment in the AMR
system may have been inaccurate due to their having been based on older first
generation technology.Thus, the overall cost figures presented for the system
deployment may be overstated and the pay back period for ROI recovery unduly
prolonged. Therefor, the Commission should consider directing Idaho Power Company
to reevaluate its system topology and components and either substantiate the current
cost analysis or revise it according to new findings of technology.
It must be noted for the record that the incremental cost increase for a single
phase class 200 meter supporting Time of Use rates with up to 96 daily records of 15
minute interval data stored for 35 days is very low as of May, 2003. Such meters would
allow the implementation of Time of Use rates now or in the future. On the other hand,
if meters were selected for mass deployment which were not capable of this feature, the
conversion to Time of Use rates would require yet another change out of approximately
375,000 meters. Further, the adoption of Real Time Pricing structures which is the
logical and natural extension of Time of Use rates can easily be achieved to the extent
that the meters deployed, 1.) measure Power, not just accumulated Energy, 2.) have the
aforesaid Time of Use capability, and 3.) are capable of communication to an optional
in-home user interface. A basic research report and trend analysis authored by Judith
Warrick on Real Time Pricing as published by Morgan Stanley Dean Witter entitled
The Value of Information-Lessons From California is attached hereto and incorporated
by reference herein.
Although the issue of critical peak power was not a direct subject of
discussion in the workshop pursuant to the limitations established by the Commission,
it is obvious to the common man that the purpose of Time of Use rates is to help reduce
the peak power demand thereby reducing generating process requirements and
transmission and distribution system maintenance. Therefore, it is in the best interest
of the consumer, commission, and Idaho Power Company to encourage conservation by
users. It is generally accepted wisdom in the industry that consumer s react negatively
to forced conservation through programs such as remotely controlling air condition
units, etc. by the utility. It has also been established by numerous studies that when
consumers are provided immediate feedback regarding their consumption of power in
dollars and cents, the typical consumer will use 10 to 15% less power per month. The
difference relates to human nature and the concept of free will and voluntary
conservation versus forced conservation. Documented studies may be found in the
trade and in numerous instances of public testimony including, but not limited to, the
testimony of S. David Freeman, Chairman of the Public Power Authority of California
and 2001 assistant to the Governor of California during the "California Energy Crises
citing such facts. As a rate increase may be required by the Idaho Power Company to
fund the deployment of the AMR system, the voluntary savings on the part of
consumers can be an important offset to such rate increase. More importantly, the
impact of conservation goes far beyond the issue of a ratepayer s rate increase offset.
Technology exists today which will allow the consumer to have the up to the
second consumption, cost, and pricing information required to conserve as stated in
paragraph 3 above. Any communicating meter to be installed by the Idaho Power
Company must be capable of communicating to such a consumer display.Said
consumer display communications should be supported by wireless communication
methodology thus making the consumer display and controller device a user installable
device which can be purchased by the consumer, on a voluntary basis from the utility
company or other vendor. This device may be used by the utility to provide up to the
minute pricing information to the consumer via the display screen thus providing the
total means to deliver Real Time Pricing structures to the consumer. Since this device
is optional, the consumer has the choice to purchase it at their whim and convenience
and this device is not in the billing information data critical path between the meter and
the utility CIS and billing system.
In the workshop it was stated that other meter features such as service
outage reporting, overvoltage/undervoltage reporting tamper and theft of service detect
and reporting, had merit but were difficult to quantify. A modern state-of-the-art
communicating meter capable of providing the features and functions articulated
herein has these capabilities as well. Thus the implementation and use of these features
becomes a software implementation issue by the utility and can be phased in as time
and resources permit with no additional hardware cost.
Respectfully Submitted,
Dated this 21st day of May, 2003
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Patrick R. Clifford Tom D. Tamarkin
MORGAN STANLEY DEAN WITTER
Global Electricity Strategy
Juditb B. Warrick
+1 (1)212 76! 7'J~
Judilh. W&rickQ\morganstan1cy..rom
7arkct Comln~nl~r,'IStralp.gy August 6, 2001
The Value of Information
Lessons From California
. The value of transparency In electricity markets Is becoming obvious
Financial vendors used to charge for day-old and IS-minute old stock
quotes. Real-time, essentially free quotes have radically changed the
financial l1Jarkets. I see the same in store for electricity.
. Rei'lHime electricity quotes through your m8l8r?
The electricity business uses antiquated technology. But technological
advances and transparent markets make real-time meters economical
and valuable. in my opinion.
. EIectricily is price elastic; consum~ armed with data wi actust their dellWld
The apparent e1ectricity demand-supply imbalance could reverse if
data were available to consumers to make costs and prices transparem
throughout the system. Average pricing would disappear.
lWQRGANSTANLEYDEAN WITTER I F'8fle~
The Value of lnfor,nation
--
Lessons FrotrrCalijornia
'The he$dtines are no longer $creaming abO1.lt the trauma
facing CalifO11)ia. Hysteria is ixing reph~ced by more ra~
tioo.aJ discootoo (except those politicians. who only seem
ml..101lal when. viewed in ~lC context of an: elcction bid).
FOf'~ast~ are. rushing to lower pr-oiections of the number
of boors that the state win be phmgedintodadwess ~1I1d
chaos. (J.I1dt"cl, Ijust saws. forecasldrop from 300 hours to
Zeto.) Cotlsumets are acting rationally. suppliers arere-
spom:Hu$, and pl'i.ces were falling evcn before !he rcgnb.tcrs
cave(! in a!1Jl.ordcred price caps that I believe win only in-
terrupt the process of resto.ting order to 'dJ.e market
go is California -f,j bust? And u)d)()..\)e of us who don
llvetbere, doos it matter?
Ye:'J, 1 cont:i1l1,l8 to tbirlkCalifomiA win ooa bust ICQtltinue
to bdicvcthat price elasticity d~ exist i11 ~le.ctricityand
that CO:nSlIIlle(S are rational, that slippIim will act in their
own best interests, llild that the mediawiU do..,mat it C'M. to
!;:re~l.eJ1).ilximl1m hysteria to capture maximum eyebaLls. In
other words, tile wadi;! is continuing aioug its normal, pre-
dictabkp;1th. Except...
. . .
EKcept thatCaHfornJa hils provided us with some.real~
time real-Hie. leS$OI1S that'iV'f: igl1~at o.Ur petil AmI some
other opportunities to understand how thew-odd r.tal1y
works, how that i$ changing, how thatcan change, how \.\'1;i
see the future.. illld v.lIatv.-e ought to do about it.
How the World Reallv Works
EI~ctri(:iW 1$ Prlc~ Elastic
EYCti in eleetdcity-even in that commodity that everyone
loves' to say is different -markets work. El$(:h:jcityL~
price: eh!.&t1c. This is' a h:illlC fact Df urethft( most people
simply refuse to believe.\VliUe itistrl1~ tl1nt electricity i$
less price elastic than many other products, se\\'ice~, and
cOl'llmi:Jditics, it i,r still price;ek1:.tid
It liOok me 1\.10118 time to learn the difference betv.'Ce1l less
elastic ano in~lasti.c. My $(:(lnOmics textbook. used both
~Iectricityand tHl$oline a~ exai1lples of products that v,'ere
price inela~1ic (Ihis goes \vay bqck. folks) and. I believed it
for a long time.. 'Then I came to learn that until prices in-
crease (and the)" hadn t for decades up to the mid-70s ),it' $
hard to see pdce elasticity. Of course, fume-mid 90s \",hen
pri(~" dec:l'ease:d. find price elasticity vlorke.d to im;t'(?(N1;?
sales (ofbcth ga.,wUnc and d.cctricity) :JJCOpte as&umedthat
it w~ 3. natural function of grmvlh in the~nomy and the
natural order of tbhlgR (Ever wonder why growth in eJee,
tdcity in C~ljfX)tnia sP\irted in tile mid 90s? Hint if
betnllSoe. of the Internet and Silicon VaJley. Just look at t1l(;).
recqrd declining prices of l1!:U:ura.1 gas and electric! (y Pi'iC-(S
during tl:JQ8e years.
So, thel'irst Je$$Ql1 11) be taken from California's debacle
is that \-\'hUe ~lect.ricity may be leS$ price elastic tfu.:tn
vtae..- g(iOO~ and senices, ills pr1cedasti,~. A.rece:ot
study by Cambridgi;: Energy Research As$ociate,.s (CERA)
cood1.ldcd th~ price ~Iastidtyof electricity ranges from 0"
to 0.28 (0 ismelaSlic. 1 i&perf~tlye;!a.stic). depending on
Global Eleodc:iry ,'iJrt/r;egy -August 6, Z()()l
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the eustomer ,dass. This may not sound like muclt, but
when prires rise. by 20%. this IDC&ns a dc.crC;$c in WlllIDC
du~ to tlu::price. increase of2% 10 6%, Irlan.industry
growing at 2~3%, or cven 4% per year, this is huge. CERA
caltulated that, given rl;ilative usage rates in CaUft1rnia, a
10% priJ:m incr~se for rnidential customers would reduce
demand by the ,SlIme amount as a 34% price i.tH:reas~for
indus,trial CI.i8l'Qme13. Governor Davis, $'e you listening?
PJ.'obably not, bUltllell neither are mnhy managements-
Several sourcesql1oted utHity managers a5 being astonished
by c0nsumer~ctions toprice incr~s...
ElectrtcltyPrice$Are VobitUe...
The volatiHtyln electricity prices carne as are",l shock. to a
lot of people especiJdly tl10Sc who owned s.ecurities of
C~JlfDrni:a utilities last fall. Butwhile consumers ill Call-
fomi.a luw~bc:cn shkhkd from the volatility in prices, the
volatility in C1)$t$ h~$. kmg been a fact of electricity produc.
tion.
In the days of electrIcity mQI:H:~()nes and regulators, wildly
\'3.ryin g diffurences in the cost ofprooo.ction at vm'ying
times of the d~y! week, ood season were (and in matl)'" cas~.Q
still are being) averagedoutto ()n~ price charged at an
times, This, is doesn t make ocouomk serJ.$.C unless the OOSl
of collecti1lgmfQm:m~ion (that 1,')., .....110 US1:,u how much and
when) 1S greater ilUill the total variation in cost, III the. days
before smcon, the assumption that oosts of data ro1lection
were higher tllal'l10ta1 cost& may fia vebccn flc.cl1.r1:1te.But
no longer.
,."......".~.
Please refer ro importarttdisclosurMla:l 111& !utoofthle ~PQrt,
li.fORGAN STANLEY DEAN WITTER
... aut DynamIc Pricin~ Compresses Volatility
A hardlook ata standard ppte dlJflllon cw""e (see Exhibit
n for p(')wer rapidly leads one. to two conclusions: one"
prices are volatile, and tWl)~ that vollltilitydrops dramatj~
cally from the peak. (Not~: S,Q thatthe rernainingd.1ta
wol,ddbe .rnore visible. we have capped me graph at$200
NIWh, which cut off 12 homs wherapnces excetded.$200
~nVh. H~d ",It'- !l0! capped the graph, the 1'-'2XIS wooM have
eKtended abovc $1000 MWhlxtt at !:he scale of this.,graph,
the claW-line merged with the y-axis.
e-:ottlbR i
Price DuratiQn Curve (New York: CIty)
$MWh
z,ao
Iii(!
100
140
lID
100
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Number of Houts Price Exceeded (AotilJalJy)
SiJftnle: NE1"()()L, UVllWIJ $1OR;(t!)' C'CNtJriQ,1ilii!J!
Xu fact, according toTh'. William Smith, manager of market-
driYcn hmd llU'Ulageme:nt at the ElecTric Power Researct'!
Institute., it 10% dropil;lpeak demand could lead to a drop in
v4Ioksale electricity priC~5 of 50%, But those who are
(Page 3
focused On the supply sideohhe business ignored sod!
c;'llcuJ~tions bcc:au$e the,y couldn t iln3ginepeakdemand
cooldbe cut. It'.s no Vi'Onder that those ",.ho(;ontioue to
br;lieve that c.le\:tricity is priceinelastic aad that demand
te&ponre isllon-existentweresurpnllcd bytbe dramatic
drop inCaliforniaelectridiy pflce;il1!ne last several
Week:!L
LIquidity Will ~rm!M the Future
Electricity 1:rildingisu nascentmaiket.. Liquidity still leaves
it lot to be.desitoo.Butitis also a rf.tarket where thedifft:r-
~nce betweM boom a.n.d OOSt pricing scenarios areraZDr thifi
~ aCQP.cept paidlittleattet\tion b1'mallyohscrvcrs.. I've
seen. one stud)' that c(l1'\GliJQes that tl1iedifference bet\~
boom and bust pricio,gis2% of capacity, In other WOf(Is;, a
2% snot'tag'eJeadstQ a boom mprjciog (reserve margins of,
say, 13% versus 15%) atld 2% more caPl1City than needed
creates bust pricing:
Twoth()ughtsstrike tl.1eabout illis" (l J How difficult it is to
detennine demMdin this indI,Jstry.. (Rb"11ell1b~r vinen j!lac~
curatefO1'e,cas(s o:fdemand inili~ litre 70s. and eatI)" 80s 1'5-
suIted in overeapacityin the ent:1l'e.US ele.cttic ut1lhyindus-
tty'furri:!ore llJan a decade?) (2) An ecooomi(: slowdown or
(WI) ye~rsOf backAo.;jjackhot weather .VQuld acCOltnt fur
much: 111oretlmn2.%of ,capacity. This would likely lead toa
l'apidswing between' boom andbu$t pricing otherwise
known ase:!;tl'roneprice volatility'- Indeed, C.alifurnin spc.r-
f~t.s.torm was little mare than adrought(coffihined with a
pipeline e,,"plosion) that was sequentia11)' misb,rnill.ed"
So Y91atiliry --.iin sales and. tl1l:3refore, in pricing - S(;1ems to
be inherent in the current industry structure. . But does it
havetobe? AI'ldwhQ(4I) change it? ArJdhow?
'~"-"--"""
Infonnatioll Is Ever rvIore Valuable- and It Costs Less
".....------..-...-.-.....
I bcliev.eboth salts andpddng in the electricity industry
are in tbefi~t days of someS4JI1I)1J$ rethirildng, Andthat
ihe applic:alion of ted:mqlogy tuJunew ideas to this old, me-
nopoly-c..unstrained business has the. potential to unleash
hugetreativ:ity an.t!huge structUi'aI chani1e in tbeb!Jsin~ss
$0 many pebple think Ihey know andundcrstand. And what
will become itu::reasingly clear 1$ tl:1at manypeoplo do not
reaUy knQVIor understand the business and whlllre~Uy
makes tHick..
I !hinkthe ~i value of the CaHft"ltniacrLws wi11 turn out to
br; that creative minds - ma~ it ware of cle(:tricity as
something more than what makes a light switch .vorl or
Glc)bal Electridt:ySlmteg)' -Attg#w 6. ZOO)
PlNS& refer to Important dIscll)$ures at tneend oHhls report.
wl1ate.xi~ts bebind one s. cQInp\1ter'pIog.~ will devote IDm'e
Jittemioll to the pO\NWi8SU~.. NUmet'Olls voices have been
l'nisingthc i~&ues drawer quallt)' anupowerreliabilityand
the need tOr "c1efil.l "power forme digit.~ age. But tlOthil\g
brings hOlnre a point like a crisk And the bcano! the digi-
tal age amlrhe: S(;1at of v-enture capital and ted;)(l1olog1(::a1
sa.,."y has a new appreciation for a rorce soubiqlJ.!wns we
all have lcamoo to take it fmgranted.
Lessons learned frOJTl CalifQtnia
So what ~e SOme of the I~onsthey (alld v,'t.)l1ave teamed
11'0111 Califum ;s year-long: 111 ghtmare? Here they are as I
soo them:
.,,---..--.
ldOR6"Ai'l STA1'lLEI'DEAN W7TTER
""'
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",.
First, there is ~Imgt proolema:ncl, rhereJ"oY(, tI imgt:!
QPporlHniry in the snpplyand demand balance ('if ~lf;:c.
trid!y,
Supply is the one. side of the.equation that traditiollaJ
players want toaddrcSf;. TIle other sid~, demand, is
here the rea! opportuElity Hes..
Third, th(: tecbnology of electricity is mirt-d in the Illio-
2dh cemury. Silicon and solid-state el.ec!rotl.k~s have
not l~lwidely Incorporated if! the majority oftl.1e
electricity :)y~tem (including genera1Joo, tr&li$mi$$ion
distribution, or snpply), An apprei:ia,ti(mjor lh~ role of
technology and ihe potentialfora techl'wlagical sobt-
/1011 to the supply/demand im'biJ,/(mcr; may be Cal(for.
Ria s real conJribulioft 1M -,e.$f of th(f VI'Orld,
Government and the traditionaJutilitiesartd suppliers
are part of the problem, not pant of thcsolutioill. Con-
sumers' tfil!'.1 ill andsupj)nfvfor both government and
eJe;:;triGity provider\; appe.ar to have badly eroded.
UtiHlies are now the bad guys, with branolmageprob-
kIDS. First, getting inti) finch a bind, and now, more
ludicwl:Js!y\ having (he problem reverse &0 rapidly.
decisively, .md. sopubiidy juSt exacerbate-" t:hdmpfes~
SiOH that neither government nor the energy indus-I1Y
c,1i'\ be trusted to sol ve lhe problem m (CIrelli;'. the op-
portunity.
An varieties ofcon8umers want a ,ftmg-term W"EtMi(Jl!..
PriL'C elasticity!s alive and well in electricity. COil-
Sl1ti:tetscan have contral over thdr destiny and canfC-
$f,XJOd to ;approprillte pricing signals anti can and did
solve California $hort-tenn problem..
l1ile much or the i!1dustry and many if not most in gov-
ernmcnt stiI! taJk about "conservation" Or ~'dcmand-skk.
management" (much to my dismay) it Is incrc,asIngly
obvious to the c.eS! ()f the w\,)r1d (those wb,) "don t know
beller ) thaI price affects Lkmand in 00111 the long and the
shDrt ron.
And fi1iJJ'swhel'e tb~ opportunity lies and where the real
value (If tnfOrmatRot\ is..
A Growi rIg ApprecIJ:rt!onfof the Reat Vah..!$ of
InfQ1'mauon
Those. who are beginning to r(;'t;oguize the size oft11e op-
portunity that Uilifornia delineated., thoo.e who view the
(;I(),fMr Electricity Strategy
..-.
AaguS1 );001
~'-"'.'.."_.
Pl$a$e refer to important diisnloSlIfCS at the end of till$f'$'P'oi't.
._..
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I Page, 4
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industry Willl au out,.,.kl1;-r s eyes, ruo...;;;,e witholll the blinders
!bm! don t say "but electricity is di:tiferent," and with 3ft ai'"
predation fot '..vhat technology C,HI accomplish, may have a
better awareness ofili(: possibilities inherent in this indus-
try.
Those who ;are part of the Inff.wmatioil Age can vi S!J aHze the
JnformatiOlul inetT'tcicncies inherent in thi& system, To
name just a few, cmsider the:
iMOi'm,a4 on it! valu~ of the cJifference in prices of eke-
tridty and g:il5 (Ille genesis af dectrklgas conver.
gence);
,It information capable ()f bein.g CaphJted :from corporate
systell1.5 and customers' meten~;
value inherent incaptu.ou,g stich information;
value inh(;j:ent in accurate ,,"B.ather inftifmatiofl, predi.:;.
(ion,. and hedging; and
remarbbk value of accurate infonnatioo ;about costs
andprire.s.
Eac.h of these is "lOCtil a sepflrate treatise bUt let me juS! give
a few examples. One of my favorites:
Ca$\# inPOi!1t:ln1eilUgent AlrCO!1C1itJOI1e'rs
What if your air coodiupuer s senwrs knew a ieroperature
ilIld humidity itlCt~ils.e was likely to cause highcreJectridty
prices aJld was. programmed to contact other air~
ronditiooe..rs. andxfi:frigcrJion; in the ne:igbhorhoc:d and or-
ganizcda cycling pattern to reduce oVt.."1'all consumption
"!lith no apparetH change in air comfQrt :lo.u fooo tctt1petft-
tun,?
Air coollitiooer.s find refrigerators are respcmsJhte ror a hns:e:
chunk of electridtyu5agenatlonwide. Combine mat with
tbe rdationship ret'N.e.en peak demand andwhoiesak: pri(;es
noted above, and Ihe potential exists for 11 dl""dmatic swing in
pricing and future price expectations, Add that to the. $jow.
down In tccbrHilog)' in du5try sli!.ie:s and the Iruge new market
for chips and routers and servers and bandwidtll that such a
sooo.ario implies fmd it's nrnhard to understand the exdte-
meat thm IDt;: ~lectricit)' inDustry is beginning to gencrate
out~ide its own wor!eL
......_--~------_..__..._...._._..."......_"........
MORGAN STANLEY DEA.1V Jf'ITTER
Dynamic Pricing:: letting the Consumer Know thoOost
of EJootriclty In Real TIme
lj'ter spending so many )-'0I\1'$.as an analyst and. observer of
the electricity industry, s(!1netimC&my Fn!ien~ wears 3 bit
thin. This cQ;lf'$$$io'll is brought about by thoughts of "coo.
servation" and "demand-side management" a~ld "re~l-time
pricing.\'\lb.at value a real In&tketing person cooldbring to
this 81J.bject"
As 1 w'atcl1ed \the debacle in CalinJrnia unfQ1d, I couldn
help thinking that the feal soJutioo to the problem was
fdghtc.'S1ingl)' simple. It lay smack in between GOYt'J!1or
Davis' refu,~al to mise priceS find pl~$ for. coIlliervatloll and
Pttt$ident Bush's imp1ied belief that price oaps don t work
and real Americans won t COri$e1've~
Of colirsepwple ;;I.oo t want to pay mQIe! Ofcoursc poo~,IG
want all the electricity they call1..Jset Of COUfse price coo-
tro-Is don t workt Of course people want to protect th~ ~n\li-
roome-nO These. areft,ot tTuJfllalJy eJ."dusive concepts.'
But w~ live ill ademoeracy, So what's wrong with letting
the pooplechoQiie? I believe mat i'orjU$t n small portion of
the obscene amount of money California poured dOVi'n the
drain buying all lllc power its govctl1nl~nt thought its citi-
lCJ1$ wMteli and. with a dece:nt marketing campaign, every-
one could ha-'...ehadall they w::n.ted, Governor Davis could
have said he didn t raise price;,;;, President Bush could have
&aid he WiL'in t capping price~, Consmners oould ha VI;': .l$OO
aU the en~rg)' they wanted. And their bins wooldn t hnve to
go up, T()() gO-t1d Hi be true? I don t t'link so,..
, , .
Th~ real value ()f information in electricity ls in
knowing real rosts and. real prices in fCttl ti,J~$. This con-
(:Cpt slwBYs bring~ to mind thl;) financial marke;t$ atJd the
value of real-rime inforrm.nl()i1.. Ho\\" many wouldn t laugh
if I &aid the average price ofPets.corl1 over the last year was
$100 and I won t tell you wan t the current ptioo is - do
you'h'3nt to bllysol1le? No wonder the me.niliant energy
companies are making h\md!C8 capturiu$;IDe value of the
1nformation mey have about current pdl'-e$ and rea~ cnrrent
co.,Sts, YetcoLlSUmel'S continue to be treated 1i$ ")lIt$id~&. I
see \'cry!ittIe difference between the huge price companiC:.$
once charged for stock quotes that were r)'i()J"C rtX:ent than
ye$tcrday s newspaper - ll1el1 ffJf prices thai we:rcn t "HlJj(!;.
de.tayw" by 15 minutes Of mor~. Until the advent ('tfiufor-
marion s.ysrems that provIded real-time quotes essentially
free, Think how that d1:J:11g00 the fmruicial markets,
Global Elt!:C:ltid!J StrOtegy A.llgu.'it 6, 2001
PI-$;!$e refer to Important disclosures at the M!dofthl&. rt;ipoi't..
I PEtJE 1)
The electricity eq1Ji.lv1\!ent I call dynamic pricing. It's what
customeJ'S can get 'with a. Itll~~r that has it f~w dollars worth
of silicon and a 24 hours a dayn days a "reek collne..."t1on to
the tmtsidc worl.d. (1 re.cemly asked a disn:ibmion utilit)!
executive what he thollghtsuch a meter. wOllIn cost. I found
it fti8htening thilt, in thespaeeofthr~ mh1w",$ illld vtltb no
il'lplltftom anyone else, he dted ti:u:ec e$tima.t~ f(lIsur.:h it
meter: $1500, $1200, an d $1 (X10 ~ it w.as ,"lear he jlLSt
didn t b.avea due 1:\$ tv Current costs. OJ.h~r industry
soutc)/:$It)oking at new. high. ttX)11 meters pm this number at
a OWL of$lOO to $ 150to the customer,
With a tiny fraction of the money it spenlon . IO":1'oorcoII-
tracts at extraordinary pricc~, I believe the government of
California could have aut1'ittedc.vcry consume-r in CaHfor-
Ilia with such II. meter -Mid then .fU.'ifiou!l.ced "re nett
raising prires - bli'l.\'le llleIYw know how much the
power you. use costswh-.en )COil UI,e it. ADd you can USCQtl
you want whenever you want. IF you use power when its
cheaper, you CQuld even redw:e YQur hilI and stm lIse just as
mnch as 1'01,1 have in tht: past
This is just OJ'J(J example (If the value tnherentill infQrma~
Lion. All the avera,gc pricing and .ave.rage cooling ~ild subsi-
dieg and !nefficienciesm the indllstryare beginning W
unmasked. And that has lwoimpoliant implications: fn:st,
that the rhks it.hereot in the industry arc. 5.hifting and re.c.
and, that the information that is lreing uncovered:is inft.
nitely vaiuahle.
Recognition of Volume!Prlce msk
What is becoming painfuUy obvious, wb ~t California is
d~dy uUll1aSking. is tile risk inhete.J1t En the indu$try ~md
how th;jtrisk is shifting,
\\'hen aU customcr$ do nttt pay the rea.! costs of the power
theJ' use, those costs are paid by wmeQnc els.e.In tIre old
day& of regulation and monQlWly and :mechankal switdllng- i.e.. befO1'e silicon and the digital age, the best 8,'1jte.m
that couidbe devised was 3v€J'agepdcing ncro-58 customu
classes, Some very large users justified thc 1I$(: ofcxpe.n.
sive metering to determine actual demand and 1't$1 volumes,
but most did not,
Those days m'e lQng gone, ho\vever for :l few reasons.
Two of the irrtpottam ones: Fir&!, the C05t ofil1form.auon: It
is falling rapidly. Sec.(:md is the difference in peak versus
non-peak costs and pl'ice.5. While there were Jilwa)"S large
differences, there l,vert. no incentives to arbitrage. the iliffer-
ence.
~/ORGAN STAf\lLE'Y ,DEAN WITTER
Today, oonYcrgtnc~ aIIWiiS players in the market trade
the spark spread ~ the differential between gas anddeo.
!licit)' prices. Energy marketers andlradets have the inren-
tivel() ma-nage load and capture the value inherent in \he
di:f:rerencebetweC:n peak co..';'ts and off~peakC()stB. With a
2% difference betv.reen. boom and bust pricing, everybody
b,a", uu lucent! ve to increase 'Ih~ efficiency of capacityal1d to
capture all of the information in lood shape. and load pat-
terns and Cl,Istomer price sensitivity and to implernent, de-
velop, and create tecbno.1ogy to do so,
Irs: All About Choifce...
Dynamic pricing is oneSoJ:ution about to happen. But oth-
ers ahmnd. Allow'ing CtIstorners to chQC.'lirepower quality.
Allowing equipment to choose quality andrcliability, The
abiiity to choc1S$ pm"'er quali.ty, reliability, and price by
CtlstOITUJr. by equipment. and by U$~ge (fue qualityofpo\V'Cr
yoo might assign to yoor use of a computerfor business
purpC'JSeS and that of your teenager fOr Voice over Internet
ProlOcal might besubstantial1)' different.. ,
And then tllCfC S the opportunity inherent in netl(y'Orking:
I recently w~e a piece (11.1usings on Bouwiaries, Critical~
ity, and Emergence March 23, 200 I) 011 the potential for
GlA'lool Electricity StmJegy -AUBu;~t q, 2001
Ph~e$e re-fer to intportant disclosures at tneel1d of tn!", report.
Ip~e6
..._.._._.....__.=~
restructuring the ill-duster 111 networked di~tri.butod genera~
don and using complexity science 8ndthe work being done
ouCQIIlpicx adapti...re systems to control the. ele.ctric grid just
as the Web and telecQInmunic:atioi.!s systems do.
r ve since. seennombers that indicate up to .50.000MW
(yes, that'!;; 50 000 megawatts) of installed genret;,; are
large!)' not intetCOlll\elCtOO. (That s 20% more that the peak
demand of the entire state of California.) And that 270 mil"
lion remoteday!ca$ such as e1ectticity, sag, and water me..
ters contain critk:a1enterprlse data. This represents a real
opportunity. And the venture: capitalists .and the technology
entrepreneurs in Silicon Valley and tl1rQi:!gTIoot the US and
the rest of the world are being turned OJ'\ to the possibilities.
I d()(l t thi11k its an. accident that both Tedmolcgy Review
magazine and Wired magazine ran ooverarticJe$ ())i the new
power tedmolog)! being developed and implemented. The
l'ow'et techbusiness\vcnt red hot, just as the dOt-C~;II:l1S
turned 100 little,
But if there is val1.le iti intormatiCtl, knowing\mere and
when the opportunities abound, and knO"~ling how to lever-
age alldexplainhem is trolyinfitiitely valuable. Andtl1at
may be there.aI lesson from California.