FTC Staff Comment Before the Public Service Commission of the State of Delaware Concerning its Proposal to Revised Its Rules for Certification and Regulation of Electric Suppliers

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BEFORE THE PUBLIC SERVICE COMMISSION
OF THE STATE OF DELAWARE
In the Matter of the Adoption of Rules and 	)
Regulations To Implement the Provisions 	)
Of 26 DEL. C. CH. 10 Relating to the 	) 	PSC Regulation Docket No. 49
Creation of a Competitive Market for 	)
Electric Supply Service 	)
COMMENT OF THE STAFF OF THE FEDERAL TRADE COMMISSION1
November 13, 2013
I. 	Introduction
The staff of the Federal Trade Commission (FTC) welcomes this opportunity to comment
on the proposal by the Public Service Commission of the State of Delaware (PSC) to revise its
Rules for Certification and Regulation of Electric Suppliers (Supplier Rules).2 Several
significant technical developments – including advanced-technology meters (often called “smart
meters”) – have made it timely to consider how retail electric competition can contribute to the
achievement of substantial power system efficiencies while facilitating customized electric
services that benefit consumers.
Like other states that have adopted retail electricity competition, Delaware has
established a system for mandatory certification of electricity marketers and has developed a set
of disclosure requirements applicable to electricity sales contracts between retail electricity
customers and certified electricity marketers. Delaware’s rules for certified electricity retailers
include restrictions on electricity marketers’ use of unfair marketing practices. The contract
disclosures that the PSC requires include the prices to be charged, the length of the contract, and
1 This comment expresses the views of the FTC’s Office of the General Counsel, Office of
Policy Planning, and Bureau of Economics. The comment does not necessarily represent the
views of the FTC or of any individual Commissioner. The Commission, however, has voted to
authorize the filing of this comment.
2 Order No. 8424, In the Matter of the Adoption of Rules and Regulations To Implement the
Provisions of 25 DEL. C. CH. 10 Relating to the Creation of a Competitive Market for Retail
Electric Supply Service (July 30, 2013), available at http://depsc.delaware.gov/orders/8424.pdf.

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a list and explanation of any additional charges. The mandatory disclosure of charges includes
any charges that are associated with early termination of a contract. From time to time, states
with retail competition (including Delaware) have revised the certification and operating rules
for electricity marketers to address new conditions or practices that are of particular concern to
customers. For example, Delaware and other states with electricity competition have received
some customer complaints about unanticipated increases in the prices charged by incumbent
retail electricity marketers.
The current set of proposed revisions to Delaware’s Supplier Rules includes amendments
to Section 2.1.1.9.1.2. These revisions would require any supplier of variable-priced residential
electric service3 to “provide a toll-free number or link on the [supplier’s] website where
customers may obtain the Price per kWh at least 5 calendar days prior to the Price effective
date.” Although providing customers with notice of prices is critical to the efficient functioning
of markets, the five-day notice requirement would preclude some of the most beneficial variable
price offers, from the perspectives of both retail customers and the power system. With respect
to variable price offers, therefore, we encourage the PSC not to adopt Section 2.1.1.9.1.2 as
currently proposed. One alternative would be to include an exemption to give customers the
option to use a device or service that displays the price on an ongoing basis, or issues alerts when
the price is outside a range designated by the customer. Another alternative would be simply to
replace the five-calendar-day advance notice with a requirement of one day’s notice, which
would be a significant improvement over five days’ notice by allowing variable retail pricing
based on the PJM Interconnection’s day-ahead market prices. If the PSC chooses to implement
either of these alternatives to the five-day notice, it could also require special prominence for
disclosures pertaining to price variability and early termination charges in residential retail
electricity sales contracts involving variable rates.
Section II of this comment describes the interest and experience of the FTC in the
electricity sector. Section III explains how innovations have contributed to the practicality and
importance of variable (dynamic) prices in electricity markets. Section IV focuses on how
variable pricing has contributed to lower system costs, savings on customers’ electricity bills,
and enhanced system reliability. Section V describes how the proposed requirement for a five-
calendar-day notice of changes in variable prices for residential customers would eliminate some
of the most beneficial forms of variable retail prices. Section VI briefly describes an exemption
to the five-day notice that would restore the most beneficial forms of variable price offers while
still ensuring that customers are informed about variable prices.
3 We use the word “residential” as shorthand to refer to both residential and small commercial
and industrial (C&I) service.

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II. 	Interest and Experience of the FTC
The FTC is an independent agency of the United States Government responsible for
maintaining competition and safeguarding the interests of consumers. The FTC does so through
law enforcement, policy research, and advocacy. For example, in the field of consumer
protection, the FTC enforces Section 5 of the Federal Trade Commission Act, which prohibits
unfair or deceptive acts or practices. In its competition mission, the FTC enforces antitrust laws
regarding mergers and unfair methods of competition that harm consumers. In addition, the FTC
often analyzes regulatory or legislative proposals that may affect competition, allocative
efficiency, or consumer protection. It also engages in considerable consumer education through
its Division of Consumer and Business Education. 4 In the course of all of this work, the FTC
applies established legal and economic principles as well as recent, innovative developments in
economic theory and empirical analysis.
The energy sector, including electric power, has been an important focus of the FTC’s
merger review and other antitrust enforcement, competition advocacy, and consumer protection
efforts.5 The FTC and its staff have filed numerous comments advocating competition and
consumer protection principles with state utility commissions, state legislatures, and the Federal
Energy Regulatory Commission. 6 In particular, we have filed a number of advocacy comments
concerning retail competition.7 In our comments directed to state policymakers, one of our
4 For an overview of the FTC’s education efforts, see the FTC staff’s comment to the Consumer
Financial Protection Bureau concerning “Request for Information on Effective Financial
Education,” Docket No. CFPB-2012-0030 (Nov. 2, 2012), available at
http://www.ftc.gov/os/2012/11/1211cfpb.pdf.
5 See, e.g., Opening Remarks of the FTC Chairman at the FTC Conference on Energy Markets in
the 21st Century: Competition Policy in Perspective (Apr. 10, 2007), available at
http://www.ftc.gov/speeches/majoras/070410energyconferenceremarks.pdf. FTC merger cases
involving electric power markets have included DTE Energy/MCN Energy (2001) (consent
order), available at http://wwwftc.gov/os/2001/05/dtemcndo.pdf; and PacifiCorp/Peabody
Holding (1998) (consent agreement), available at
http://www.ftc.gov/os/1998/02/9710091.agr.htm.
6 A listing, in reverse chronological order, of FTC and FTC staff competition advocacy
comments to federal and state electricity regulatory agencies is available at
http://www.ftc.gov/opp/advocacy_subject.shtm#uttg.
7 For example, the FTC staff discussed electricity competition issues in its Comment Before the
New York State Public Service Commission in the Proceeding To Assess Certain Aspects of the

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principal efforts has been to advocate for policies that allow or nurture competition and thus
benefit consumers.8 The FTC’s competition advocacy program also has produced two staff
reports on electric power industry restructuring issues at the wholesale and retail levels.9 In
addition, the FTC staff contributed to the work of the Electric Energy Market Competition Task
Force, which issued a Report to Congress in the spring of 2007. 10
Residential and Small Non-residential Retail Energy Markets in New York State, Cases 12-M-
0476, 98-M-1343, and 06-M-0647 (Jan. 24, 2013), available at
http://www.ftc.gov/os/2013/01/130125nypsccomment.pdf; and Comment Before the Public
Utility Commission of Texas in the Rulemaking Regarding Demand Response in the Electric
Reliability Council of Texas (ERCOT) Market, Project No. 41061 (Mar. 11, 2013), available at
http://www.ftc.gov/os/2013/03/1303texaspuccomment.pdf; and Comment Before the Arizona
Corporation Commission (ACC) in the ACC’s Inquiry into Retail Electric Competition, Generic
Docket No. E-00000W-13-0135 (July 11, 2013), available at
http://www.ftc.gov/os/2013/07/130716arizonacorpcomment.pdf. See also Comment of the
Federal Trade Commission in the ACC’s Workshop on Retail Electric Competition, Docket No.
E-00000A-02-0051 (Jan. 26, 2009), available at
http://www.ftc.gov/os/2009/01/V090001electricityadvocacy.pdf.
8 See, e.g., FTC Staff Letter to Hon. Stephen LaRoque, North Carolina House of Representatives,
Concerning North Carolina House Bill 698 and the Regulation of Dental Service Organizations
and the Business Organization of Dental Practices in North Carolina (May 25, 2012), available
at http://www.ftc.gov/os/2012/05/1205ncdental.pdf; FTC Staff Comment to Hon. Patricia Todd,
Alabama House of Representatives, Concerning Alabama House Bill 156 (Allowing
Veterinarians to Work as Employees of 501(c)(3) Nonprofit Spay and Neuter Clinics) (Apr. 26,
2012), available at http://www.ftc.gov/os/2012/04/120426alabamaletter.pdf.
9 FTC Staff Report, Competition and Consumer Protection Perspectives on Electric Power
Regulatory Reform: Focus on Retail Competition (Sept. 2001), available at
http://www.ftc.gov/reports/elec/electricityreport.pdf; FTC Staff Report, Competition and
Consumer Protection Perspective on Electric Power Regulatory Reform (July 2000), available at
http://www.ftc.gov/be/v000009.htm (edited compendium of excerpts from previous comments
that the FTC and its staff provided to various state and federal agencies).
10 That report is available at http://www.ferc.gov/legal/fed-sta/ene-pol-act/epact-final-rpt.pdf.

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III. 	Electricity Industry Innovations Warrant Consideration of Competitive Retail
Dynamic Pricing To Benefit Customers through Lower Costs, Increased
Innovation, and Expanded Variety of Services
Competition has been an effective organizing principle for the United States economy
since the founding of the Republic. For more than a century, the promotion of competition has
underpinned the federal and state statutes that apply to most sectors of the economy.
Over time, industries subject to economic regulation have represented a major exception
to the general rule of open competition. Nonetheless, technological and organizational
innovations in certain industries can undercut the rationale for economic regulation. Innovations
of this type present an opportunity to introduce or reintroduce competition in regulated
industries. The competitive process creates strong incentives for firms to minimize the costs
associated with existing production techniques, to innovate, to erode incumbent firms’ market
power, and to provide the variety of products that customers are interested in buying.
Five of the most significant technical developments in the electricity industry over the
past 25 years are:
(1) a trend toward smaller, highly efficient generation units;
(2) the use of wind, solar, biofuel, and geothermal renewable energy sources for
generation;
(3) automated dispatch of generators and of transmission and distribution operations;
(4) wide deployment of smart meters that measure and report power use in small time
intervals and that can also communicate price and power system status information to
customers; and
(5) energy storage technology advances.
The federal government, the states, and many foreign governments have worked over the
past 20 years to advance competition in the electric power industry. Like Delaware, several
other states have adopted retail electric competition as part of this effort, and they continue to
seek improvements in their retail competition regulations and programs to further benefit
consumers. 11
11 States that have adopted broadly available retail customer choice for electricity services in the
service territories of investor-owned utilities include Connecticut, Delaware, Illinois, Maine,
Maryland, Massachusetts, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode
Island, and most of Texas. The District of Columbia has also adopted electricity customer
choice. Some customers have some degree of electricity retail choice in California, Michigan,
Montana, and Oregon. Recently, Illinois, Ohio, and Pennsylvania have undertaken substantial

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Retail choice often leads to a market in which suppliers offer a variety of services that
can present many benefits to power customers, including enabling them to better match their
preferences for bill savings, increased reliability, renewable power, and energy management
services. For example, customers can choose to lower their electricity bills by shifting power use
away from periods when the power system depends on more costly generation resources or faces
challenges to its reliability, and they can choose how much power to consume from renewable
generation sources.
Some third parties have evaluated the effectiveness of efforts by some states (and
Canadian provinces) to foster retail competition.12 These evaluations list the factors that appear
to be important to the people who are preparing the evaluation and explain the reasons for
including – and the weight given to – each factor.13
The evaluations reveal that when effective retail competition is combined with technical
developments (such as those noted above), customers are in a position to help address the
challenges of balancing supply and demand in the power industry, either locally or on a wider
geographic scale. When customers are compensated for providing this help, the response is often
substantial.14 Customer responses to retail price signals that accurately reflect wholesale market
revisions of their retail choice rules to support increased competition. Expansions of retail
customer choice (to include customers that currently do not have this choice) are under
consideration in California and Michigan.
12 See DEFG, LLC, “2012 Annual Baseline Assessment of Choices in Canada and the United
States: Electricity Restructuring Scorecard,” accessible at
http://defgllc.com/publications/consumer-choice/. In 2012, the states with the top five scores for
C&I customers (in descending order) were Texas, Illinois, New York, Pennsylvania, and
Maryland. For residential customers, the states with the top five scores (in descending order)
were Texas, Pennsylvania, New York, Connecticut, and Maryland.
13 DEFG groups the elements used in scoring retail choice in various states under four topic
areas: status of retail choice; wholesale competition; default service; and facilitating customers’
identification of, and switching to, an alternative retailer. Details on weights and the specific
elements included in each topic area are contained in an appendix to DEFG’s annual retail choice
scorecard publication (e.g., Appendix H to DEFG’s 2012 Annual Baseline Assessment, supra
note 12).
14 For a bibliography of papers on the process known as “demand response” (or “DR”) prepared
by Brattle Group, see Toni Enright and Ahmad Faruqui, “A Bibliography on Dynamic Pricing
and Time-of-Use Rates, Version 2.0” (Jan. 1, 2013), accessible at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2178674. Dr. Faruqui (along with
colleagues Sanem Sergici and Eric Shultz) summarized several reviews of DR projects in
“Consistency of Results in Dynamic Pricing Experiments – Toward a Meta Analysis” (Jan. 29,

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conditions reduce system costs, support reliability, and provide environmental benefits.15
Customer responses to higher power prices can be automated through equipment that cuts back
or delays power use at pre-set price points. Alternatively, customers can manually adjust their
air conditioners or other heavy power users when meters or other communications alert them to
higher prices. Reducing power use during periods of high wholesale prices can reduce overall
system costs by utilizing lower-cost generation units and reducing the need for high-cost peaking
generators to meet demand spikes. It can support reliability by cutting power consumption when
the system is at greatest risk of blackouts or is in the midst of recovering from a service
interruption. It can provide environmental benefits by facilitating integration of renewable
energy sources and avoiding the use of older, higher-cost generators with higher pollutant
emissions during peak demand periods. This DR process is a critical justification for grid
modernization. Collectively, the term “smart grid” encompasses systems that support DR and
the sophisticated monitoring of conditions on many components of the power grid.
IV. 	Dynamic Pricing under Retail Competition Can Help the Power System Avoid
Increasing Costs and Threats to Reliability for All Electricity Consumers
Some recent developments appear to underscore the importance of gaining customer
assistance in balancing the power system. Electric vehicles (EVs) illustrate this point well.16
When EVs are recharged off peak (overnight), they help flatten load profiles (reduce peaks and
fill troughs in consumption) so that generation and distribution assets will be more fully utilized
and their fixed costs will be spread over more power volume, at a lower per-kilowatt unit rate.
Conversely, if EVs are recharged during peak demand periods, they could cause significant
demand increases during the most costly time of day for power generation and could stress the
grid, to the detriment of reliability. Consequently, all consumers benefit if EV owners have
incentives to recharge their EVs overnight, even if that is not always the most convenient time
for EV owners. Pricing electricity more cheaply overnight than during daytime hours provides
EV owners with a powerful incentive to recharge overnight. Both EV owners and electricity
2013), available at
http://www.brattle.com/system/publications/pdfs/000/004/400/original/Consistency_of_Results_i
n_Dynamic_Pricing_Experiments_Faruqui_et_al_DistribuTECH_012913.pdf?1378772104.
15 See, e.g., Charles J. Black, “Dynamic Pricing Evaluation for Washington” (Jan. 2011),
available at http://www.naruc.org/Publications/SERCAT_Washington_2010.pdf; Ahmad
Faruqui, “The Case for Dynamic Pricing” (Aug. 23, 2010), available at
http://www.brattle.com/system/publications/pdfs/000/004/517/original/The_Case_for_Dynamic_
Pricing_Faruqui_SG_Latin_America_Aug_23_2010.pdf?1378772111.
16 See also, e.g., Ahmad Faruqui, Ryan Hledik, Armando Levy, and Alan Madian, Brattle Group
Discussion Paper, “Will Smart Prices Induce Smart Charging of Electric Vehicles?” (July 2011),
accessible at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1915658.

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customers in general can obtain even lower bills if EV owners schedule their vehicle charging to
coincide with the abundant supply and uncongested transmission that real-time pricing
facilitates. For example, an EV owner could set the charging equipment to draw power only (or
primarily) when the price is below a specified level.
There is wide recognition that it is inefficient and wasteful to apply flat electricity rates
for recharging EVs. Nonetheless, we urge the PSC – and state regulators in general – not to
jump from this recognition to a determination to limit dynamic pricing only to EV recharging
(through a requirement to meter separately the electricity used to recharge EVs). Although such
a limited approach can result in EV recharging prices that more closely follow system marginal
cost,17 such an approach would be unjustified because EV recharging is just an example of a
larger economic point: dynamic pricing for any end use is more efficient and pro-consumer than
uniform flat-rate pricing, and regulators should take the steps needed to ensure that dynamic
pricing prevails in electricity markets. As discussed below, the promotion of retail competition
is one promising route to that outcome.
Flat-rate electricity pricing at the retail level – in the face of volatile generation and
transmission prices at the wholesale level – results in large subsidies for customers consuming
power in peak demand periods and large penalties for customers consuming power in demand
troughs. Faced with such distorted price signals, retail electric power customers frequently make
distorted consumption decisions, and the resulting inefficiencies in the power system work to the
detriment of all electricity consumers.
Further, flat rates – which cause all customers to face higher average system costs and
lower system reliability – distort incentives to invest in methods to improve energy efficiency or
in devices to shift consumption to off-peak periods (when system costs and wholesale electricity
prices are lower). As with any market, pricing electricity closer to marginal cost improves the
overall efficiency of the consumption of the good and reduces deadweight losses.18 When a
17 System marginal cost is the price bid by the most expensive generation or DR source that the
system operator dispatches in a specific period to balance demand and supply. Because of large
and rapid variations in electricity consumption over the course of a day and between seasons –
coupled with a lack of low-cost methods of storing electricity – system marginal costs vary
greatly over time. This results in a wide variety of economically viable generation resources
with differing marginal costs. The electric power industry has developed various methods of
dealing with the wide differences among the characteristics of generation sources and the lack of
practical large-scale electricity storage technology. (Of course, we recognize that high fixed
costs may make it difficult or impossible for any firm to remain in business and accept prices
close to its short-run marginal cost for an extended time.)
18 For further discussion of opportunities to improve the performance of the electricity sector, see
Executive Office of the President, National Science and Technology Council, A Policy

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customer with distributed generation (DG) facilities (e.g., solar panels on the roof) faces flat
rates, the rates discourage investment in energy storage devices that could help balance supply
and demand, especially when the power system is under stress and close to being
overwhelmed.19
Retail competition can help in a voluntary transition away from flat-rate pricing,
particularly for residential customers.20 Suppliers will compete by offering customers choices,
such as dynamic pricing. Several pilot programs have shown that residential customers typically
have lower power bills under dynamic pricing and generally prefer dynamic pricing after
experiencing it in a pilot program. 21 Ideally, under retail competition, some retail electricity
marketers will publicize these findings and use them to grow consumer interest in retail electric
service offers featuring dynamic pricing. Electric bills can be reduced by compensating the
customer for his or her role in balancing power system demand and supply (once smart meters
are in place, as they mostly are in several states).22 Gulf Power in Florida and OG&E in
Framework for the 21st Century Grid: Enabling Our Secure Energy Future, esp. § 4.2 (Demand
Management) (June 13, 2011), available at
http://energy.gov/sites/prod/files/oeprod/DocumentsandMedia/nstc-smart-grid-june2011.pdf. (In
“Key Action 5,” this report (at 31) states: “Federal, state, and local officials should strive to
reduce the generation costs associated with providing power to consumers or wholesale
providers during periods of peak demand and encourage participation in demand management
programs. Innovative rate designs will be more feasible as smart grid technologies become more
widely available.”) See also Paul L. Joskow and Catherine D. Wolfram, “Dynamic Pricing of
Electricity” (Jan. 2012), available at
http://faculty.haas.berkeley.edu/wolfram/Papers/AEA%20DYNAMIC%20PRICING.pdf.
19 For example, wind DG units generally produce the most abundant power during windier, off-
peak hours. If retail prices are flat, there is less incentive for a wind DG owner to store power
produced in the off-peak hours (in order to sell it during peak hours) than there would be if peak-
hour prices considerably exceeded, and prices in off-peak hours were less than, flat-rate prices.
20 Dynamic pricing is not inherently inconsistent with the existence of an electric power
monopoly. Nevertheless, under the cost-based regulation that has been traditional in the electric
power industry, it appears administratively difficult to customize dynamic prices to match widely
varying customer circumstances and risk preferences.
21 Ahmad Faruqui & Jennifer Palmer, “Dynamic Pricing and Its Discontents,” Regulation 16
(Fall 2011), available at
http://www.cato.org/sites/cato.org/files/serials/files/regulation/2011/9/regv34n3-5.pdf.
22 In the aggregate, only about one percent of low-volume retail electricity customers are on
dynamic pricing so far. Ahmad Faruqui, “Dynamic Pricing for Residential and Small C&I
Customers” at 16 (independent presentation to a technical conference of the Ohio Public Utilities
Commission) (Mar. 28, 2012), available at

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Oklahoma – vertically integrated utilities – also have well-established dynamic pricing options
for customers.23 Under retail competition, marketers also will seek new customers by offering
added services, such as energy management, mixes of various types of renewable energy, and
assistance in recognizing and implementing opportunities for energy efficiency, onsite power
generation, and onsite energy storage. Some of these enhance a customer’s ability to respond to
changes in electricity prices.
If the innovations associated with retail competition are effective in reducing reliance on
flat-rate pricing, then such competition is likely to enhance reliability by enrolling customers to
help balance supply and demand on the power system. By trimming demand peaks and filling in
demand troughs, DR eases the challenges that grid operators face. Further, retail competition
allows marketers to offer improved reliability as a specific service. For example, marketers
could offer installation and maintenance of energy storage devices or onsite generators that allow
customers to have electric power when the grid is experiencing a blackout or local distribution
lines are down.
V. 	Requiring a Five-Day Notice of Prices (1) Restricts Dynamic Price Offers that
Can Benefit Consumers and (2) Is Likely to Harm Consumers through Higher
Average System Costs, Higher Power Prices, and Reduced Reliability
For markets to achieve cost-reducing efficiencies and enjoy pricing and reliability
benefits, buyers and sellers must act on accurate price signals that reflect marginal costs in
competitive markets. If Delaware’s retail supplier rules preclude retail prices that closely follow
changes in wholesale prices, the state’s customers will forfeit potential opportunities to assist in
balancing supply and demand on the system and to lower their electric bills. The proposed five-
day notice requirement is likely to have these negative effects if applied to variable price offers
from electricity marketers.
In addition, a delay of five days before price changes can be implemented means that
customers will receive less accurate price signals to invest in equipment or appliances that could
enhance their ability to respond to electricity price changes. Moreover, customers’ responses to
http://www.brattle.com/system/publications/pdfs/000/004/451/original/Dynamic_Pricing_for_Re
sidential_and_Small_C_I_Customers_Faruqui_Mar_28_2012.pdf?1378772106.
23 Ahmad Faruqui, “Implementation of Dynamic Pricing: Trends and Debates,” 5th Latin-
American Smart Grid Forum (Nov. 28, 2012), available at
http://www.brattle.com/system/publications/pdfs/000/004/456/original/Implementation_of_Dyna
mic_Pricing_-
_Trends_and_Debates_Faruqui_Latin_American_Smart_Grid_Forum_Nov_28_2012.pdf?13787
72107.

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price fluctuations are expected to become more important for balancing the electrical system in
the PJM area as a whole (including where Delaware residential electricity customers live) and
more locally. A requirement of five days’ notice would dull customers’ incentives to invest in
responding to this increased need.
The electric power system in PJM is designed so that changes in wholesale power prices
reflect changes in marginal costs at each node of the transmission network. Wholesale electricity
prices change all the time at nodes in Delaware and throughout PJM.24 Dulling the accuracy of
customers’ responses in Delaware will increasingly threaten to undermine not only customers’
efforts to save money on their power bills but also system reliability at state and local levels.
Economists who study differences in retail electricity pricing regimes rank the accuracy
of price signals and the impact of dynamic prices on customers’ consumption patterns and on
their incentives to invest in devices that will allow them to respond more effectively to changes
in power prices. In these rankings, real-time prices and various other forms of dynamic pricing
offer greater benefits to customers if they are willing to experience greater potential fluctuations
in short-term prices.
The Brattle Group discussed tradeoffs associated with several variable rate design
alternatives in its independent presentation to a technical conference of the Ohio Public Utilities
Commission. 25 Brattle’s study examined these tradeoffs by graphing them in terms of risk on
one axis (measured as volatility of prices) and rewards on the other axis (measured as expected
bill savings). Brattle studied nine rate designs.26
24 PJM offers an explanation (including color mapping of price changes) for the continuous shift
in wholesale prices in Delaware and the other states it serves. See
http://www.youtube.com/watch?v=h1KPB042RcI. Average wholesale power prices in PJM are
displayed at http://www.powerisknowledge.com.
25 Faruqui, “Dynamic Pricing for Residential and Small C&I Customers,” supra note 22, at 9 and
10.
26 The nine rate designs in Brattle’s presentation to the Ohio PUC were:
Time-of-Use (TOU): Charges a higher price during all weekday peak hours and a
discounted price during off-peak and weekend hours.
Super Peak TOU: Similar to TOU, except that the peak window is shorter in duration
(often four hours), leading to a stronger price signal.
Inclining Block Rate (IBR): Customer usage is divided into tiers, and usage is charged
at higher rates in the higher tiers. IBR is meant to encourage conservation.
Critical Peak Pricing (CPP): Customers are charged a higher price during a few hours
and a discounted price during the remaining hours.
Variable Peak Pricing: CPP with added rate variability.

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Of the nine designs that Brattle studied, only TOU rates, Super Peak TOU rates, and
IBRs – dynamic prices that are commonly set well in advance of knowing actual wholesale
prices – appear to be permissible under the PSC’s proposed five-day notice provision. By
contrast, the PSC’s proposal for five days’ notice prohibits the other six rate designs (the fourth
through ninth designs listed in note 26, supra) because it is not possible to determine one or more
elements used in setting those forms of dynamic prices five days before electricity is supplied.
Yet relative to flat prices, these excluded alternatives can all improve the efficient use of electric
power and potentially lower consumers’ bills. Moreover, because some of the excluded designs
include the most accurate and timely price information stemming from the demand and supply
conditions facing the electric system at the time the electricity is generated and consumed, those
designs can achieve these goals better than the few forms of dynamic prices that the proposed
five-day notice would permit.27
VI. 	The PSC May Wish to Consider an Exemption that Would Allow More
Beneficial Forms of Variable Price Offers While Keeping Customers Informed
about Prices
Several technological developments can keep customers informed about the prices that
they are paying for power. Two common examples are in-home displays and web portals that
show prices.28 Either of these provides information that customers can use to adjust their power
consumption to gain savings on their power bills. Where there is dynamic pricing, research
indicates that a more effective means to obtain savings consistently is to automate responses to
power price changes. Important options include smart thermostats and home area networks that
control the operations of home appliances.29 For owners of electric vehicles, smart charging
CPP-TOU Combination: A TOU rate in which a moderate peak price applies during
most peak hours of the year, but a higher peak price applies on limited event days.
Peak Time Rebate: Customers can earn a discount by reducing usage during critical
hours.
Real Time Pricing (RTP): A rate with hourly variation that follows locational marginal
prices (LMPs), but with capacity costs allocated equally across all hours of the year.
Critical Peak RTP: A rate with hourly variation based on LMPs and with a capacity cost
adder focused only during event hours.
27 See the appendix to this comment for a copy of the graph from the Brattle study.
28 Faruqui, “Dynamic Pricing for Residential and Small C&I Customers,” supra note 22, at 14.
29 Id. Arrangements to pay for the equipment have ranged from outright purchase by the
customer to financing by third parties. The recoupment of the investment depends on several
factors, including how strongly the customer responds to price signals and the per-unit savings
available at the customer’s location.

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stations can be an effective means to reduce charging costs. Automated response technologies
have the advantage of operating even when the customer is not home and do not require
customers to take any actions at inconvenient times. We encourage the PSC to consider adding
an exemption from the five-day notice provision if the customer certifies that he or she would be
satisfied with access to ongoing price information or automated price response equipment in lieu
of a five-day notification of price changes. This allows customers to make informed decisions
about responding to changing electricity prices that may allow them to cut their power bills and
help balance system demand and supply more than would be possible under the proposed five-
day notice language in Section 2.1.1.9.1.2. The PSC also may wish to require that disclosures of
contract termination charges be particularly prominent for customers who have entered into
variable price contracts with electricity marketers.
In the alternative, if the PSC concluded for some reason that real-time prices do not
provide sufficient information for residential customers, the PSC could reduce the harm (to
customers and to electric system reliability) of a prior-notice requirement by shifting from a five-
day notice to a one-day notice. This would be an improvement, since it would allow most of the
rate designs that, as we discuss above, would be disallowed under a five-day notice (including
offers that provide greater savings than those allowed under the proposed five-day notification
rule). On the other hand, the disadvantage of a one-day notice – relative to the exemption we
have recommended – is that the resulting dynamic prices would need to be based on day-ahead
prices, which can diverge from prices that would clear the market at the time when the power is
actually delivered to customers.
VII. 	Conclusion
The FTC staff appreciates the opportunity to submit this comment. If you have any
questions or comments, please feel free to contact John H. Seesel, Office of the General Counsel,
at (202) 326-2702.

Dynamic pricing facilitates customer
choice
Risk
(Variance in
Price)
Reward
(Discount
from Flat
Rate)
10%
5%
1	0.5	Flat Rate
RTP
CPP
VPP
Inclining Block Rate
Seasonal Rate
TOU
Less Risk,
Lower
Reward
More Risk,
Higher
Reward
Super Peak TOU
PTR
Potential
Reward
(Discount
from Flat
Rate)
Increasing Reward
Increasing Risk
The Ohio PUC 	The Brattle Group	10