Appendix F: Impact of Dynamic Pricing On Low-income Customers: Quantifying the Benefits of Dynamic Pricing In the Mass Market
Dynamic pricing offers electric customers lower prices during most hours of the summer while raising prices
significantly for a small percentage of hours when system conditions are critical (typically 2 to 3 percent of
all summer hours). The primary attraction of dynamic rates such as critical peak pricing (CPP) or real-time
pricing (RTP) is that these rates provide direct incentives to reduce electricity usage when the electrical
system is most stressed because they reflect daily peak marginal costs.1,2
Some have expressed concern that dynamic pricing may adversely impact low-income customers. In
jurisdictions where dynamic prices are under consideration, many utilities are currently pilot testing some
type of CPP rate.3 In this appendix, we summarize the impact of CPP on low-income customers based on
empirical results from the California Statewide Pricing Pilot (SPP) of 2003-04.4 The results show that there
is no statistically significant difference in bill-savings across income groups. This means that high-income
customers on a dynamic rate do not benefit more than low-income customers, on average. However, taking
usage into account, low-income customers in very high usage groups may find it difficult to “save” under a
CPP rate. From a policy perspective, alternative dynamic pricing options should be considered for this group
of high-usage, low-income customers. Depending on the definition of high usage, this represents about 2.2
percent to 5.7 percent of all households in the U.S. or 4.2 percent to 11 percent of all low-income
households. (See Tables F-1 and F-2).5 One obvious solution is to offer a peak-time rebate (PTR) rather than
CPP to this specific group of high-usage, low-income customers. In addition, low-income customers in the
low-usage group could be offered a choice between PTR and CPP. In the District of Columbia, as part of its
dynamic pricing pilot program, Pepco is currently offering a PTR (also called a critical peak rebate or CPR)
to customers that are currently on the Residential Aid Discount (RAD) program. The California SPP consisted of three tracks: Track A, which included a statistically representative sample of
customers; Track B, which focused on low-income customers in areas of San Francisco (located in close
proximity to a power plant); and Track C, which focused on customers in San Diego that had smart
thermostats.7 Track A comprised four climate zones while Tracks B and C focused on single climate zones.
In this appendix, we examine the impact of dynamic pricing on low-income customers based on the results
of the SPP. First, we summarize the results of a recent study that focused on the final three-month period of
the SPP: July 1 to September 30, 2004.8 These results are indicative of an established program. Second, we
provide results for Track B customers only, which represent low-income customers over the entire SPP (15 months from July 2003- September 2004). Finally, we provide results for Track A customers, which
represent the general population of California over the 15-month period. Using Track A, we compare lowincome
customers to other customers in the same track. As shown below, each of these comparisons shows
that low-income customers do respond to dynamic prices. However, as pointed out earlier, there may be very
specific groups of customers that should be targeted for PTR rather than CPP.
