USING T.A.P. FOR ELECTRICITY PRICE ANALYSES

The price consumers pay for electricity is a primary input to the cost-benefit analysis of efficiency measures. There is often a direct correlation between the energy price and the amount of energy savings that is economically feasible, so that a 20% underestimate of energy costs could lead to a 20% cut in potential energy savings.

In principle, utility rate information is readily available. Most utilities post their tariff documents, which may run to several hundred pages, on the web. The difficulty here is not access to, but management of, a large amount of detailed information. TAP has been created to make this information usable and accessible to a wide public audience. The actual price paid for energy savings at the margin depends on several factors:

• The tariff depends on the consumer size as measured by their annual peak demand, the season, and in some cases other features such as local geography or industry type.
• Which rate block is at the margin depends on the total consumer consumption and peak demand for the billing period.
• A reduction in consumer energy use affects both the demand and energy components of the bill. The relative size of these two reductions determines the effective marginal price, defined as the change in the bill divided by the change in energy use.
• The size of the demand reduction relative to the energy reduction, which we refer to as the marginal load factor, is a characteristic of the end use being affected and of the type of efficiency measure. Load shifting is a special case where demand reduction occurs with no decrease in energy use.

The effective marginal price thus depends on the consumer type, the rate blocks, the end use and the efficiency measure under consideration. Given the required bill inputs (energy consumption and demand for the billing period), TAP handles the complexities associated with marginal pricing with highly accurate but easy to use tools.

The standard source of information on the cost of electricity is the Energy Information Administration (EIA) Form 861 database providing annual aggregate revenues, sales and consumer counts for each utility in the country. These can be converted to an average consumer price simply by dividing revenues by sales. For a single consumer, their average price of electricity is just their bill divided by their consumption. Aggregate revenues divided by sales is equivalent to a consumption-weighted average of this quantity over all consumers, and gives excessive weight to large consumers who tend to see lower prices. Approximate prices based on EIA data will thus tend to underestimate even the average price of electricity. Moreover, none of the factors discussed above can be accounted for without introducing additional assumptions.

As an illustration of the importance of these factors, the bar graph shows a distribution of effective marginal prices obtained using the TAP database for a set of consumers taken from EIA's Commercial Buildings Energy Consumption Survey (CBECS95). Marginal rates are defined for three categories of load: base load (low load factor), average load (load factor of one half) and peaking loads. Summer tariffs have been used in this example.

Building-weighted average values Load Factor Price (cents/kWh) Base Load 7.9 Average Load 8.7 Peak Factor 10.9 EIA C & I 6.8

The width of the distribution shows that different consumers will see very different prices, which is extremely important in understanding how the benefits of policy measures are distributed. The large increase in effective marginal prices with decreasing load factor illustrates clearly that peak savings are highly valued, and may in some cases have more significant economic benefit than energy savings.

Weighted average marginal prices are shown in the chart, along with the comparable average figure from the EIA data. The EIA average is 15% lower than the base load marginal price, and 60% lower than the peak load price.