APS pricing expert explains advantages of demand rates

March 21, 2016

Charles Miessner, APS Manager, Pricing, has more than 30 years’ experience in pricing, planning and business development for both utilities and private energy companies. He testified Monday in the rate case for UNS Electric, which serves Mohave and Santa Cruz counties in Arizona.

In his written and oral testimony, Miessner highlighted APS’s decades of experience in offering demand-based “three-part” rates to residential customers and customers' success in understanding the rates and managing their energy use with them. We currently have 120,000 residential customers who have chosen to use a demand-based rate.
UNS Electric has proposed a demand-based pricing model for its residential customers. Demand-based residential pricing is supported by a variety of interests, including clean-energy and environmental groups, energy consulting experts, utility trade associations and regulatory agencies.

Following are excerpts from Miessner’s testimony:
“When customers switch to the (demand) rate, they typically reduce both their demand and energy consumption, and some 90% save on their monthly bill.” (Dec. 9 testimony, p. 3)
“We looked at a sample of customers that switched from an energy-only time-of-use rate to the three-part demand rate and found that about 60% of those customers saved on their demand and energy. We also found that those who actively manage their demand have achieved demand savings of 10% - 20% or more.” (Dec. 9 testimony, p. 7)

“Looking at this same sample of customers we found that over 90% of the customers that switched to the demand rate saved on their monthly bill. The average bill savings was 9%, and the top 25% saved over 20% on average (excluding taxes and adjustments).”  (Dec. 9 testimony, p. 8)

“From a customer's perspective, a three-part TOU rate provides three ways to save on their bill – shifting kWh energy usage to off-peak hours, reducing overall kWh energy usage, and reducing the on-peak demand, while a two-part TOU rate only provides the first two ways to save, as illustrated in Figure 2 below. In addition, these three ways to save are much better aligned with the utility's cost of service, which creates a win-win t situation where the customer's bill savings result in similar utility cost savings.”  (Feb. 23 surrebuttal testimony, p. 17)

“So it is imperative that we have new rate designs that incent the right type of technologies; provide accurate price signals for incenting how and when customers use electricity; accurately reflect the types of services provided by the utility and the costs for those services; and provide opportunities for customers to save on their bills without shifting costs to other customers. All of these factors will result in the improved use of, and funding for, the electrical grid.” (Dec. 9 testimony, p. 4)
“Just because the customer reduces their electrical demand on Monday, but requires the usual electrical demand on Tuesday, doesn't mean the utility can permanently downsize the grid infrastructure, such as transformers, poles, wires, and other equipment needed to serve their home.” (Feb. 23 surrebuttal testimony, p. 16)

“APS believes that it is important to educate customers about all components of their bill, how the bill is calculated and the actions they can take to save and mitigate potential impacts from rate changes. This education can emphasize that under a three-part time-of-use rate, for example, the customer would have three ways to save on their bill – lower their overall monthly energy use (or kWh), shift energy to the off-peak hours, and lower their monthly peak usage (kW demand) during a specific on-peak period.” (Feb. 23 surrebuttal testimony, 21-22)