My name is Gary Swofford.  I'm the Vice President and Chief Operating Officer for the Delivery Business unit at Puget Sound Energy.  Puget Sound Energy is a natural gas and electricity distribution company serving 1.4 million customers in Western Washington.  I have been asked to speak to you today about our Personal Energy ManagementT Program and the important role real-time electricity pricing can play in a national energy policy. 

          For the country to achieve the levels of efficiency that are possible in our use of electricity, customers need to see the real price of electricity before they make their purchase decisions.  If we are to see wholesale electricity prices rationalize, then the retail prices that customers pay cannot remain fixed and unresponsive to the demand for more supply.  We need only look at the chaos that has been associated with the price of electricity in California to see the effects of wholesale markets that are deregulated and retail markets that remain regulated.  The remedy sought by California is a return to regulation through the use of caps on the price of wholesale electricity, when what they need is for customers to be able to see and respond to the price of electricity while needed new supplies are developed and brought on line. 

          The imperative for real-time electricity pricing is considerable.  Failure to give customers proper price signals encourages 1) the wasteful use of energy, 2) unnecessarily high costs and 3) bad habits.  On the other hand, giving customers the proper price signals results in 1) the efficient use of energy, 2) lower costs and 3) a sustainable energy use ethic. 

In addition to driving up the costs, the wasteful use of energy has substantial negative environmental impacts.  We use marginal resources that are both more expensive to operate and more polluting, and we build more resources and electric system infrastructure than would otherwise be needed.  In a recent analysis undertaken by the McKinsey Company, they found that the U.S. could avoid spending $14.8 billion annually by implementing real-time electricity pricing - with almost $8 billion of that avoided cost occurring in the residential sector (see figure  1 below).

A significant portion of that avoided cost comes from the large impact on the marginal price of wholesale electricity from a modest reduction in demand.  The Electric Power Research Institute (EPRI) found that if California had been able to reduce its demand on peak this past summer by just 2 ½ %, they could have reduced what they paid by $700 million.  The Brattle Group in a report they did concluded that a 10% reduction in peak demand resulted in a lowering of the peak wholesale price of 50%.

                   Figure 2.

Customer usage data is gathered by using newly developed metering technology that gathers and stores this information in as small as 15-minute increments.  This information can then be gathered and sent daily or even hourly if so desired.  Newly developed customer information systems (CIS) can take that usage information and match it with what the market price is at the time of usage and can provide that information back to customers making it possible for them to make informed purchase decisions.

          At Puget Sound Energy (PSE) we began providing usage information to 410,000 of our residential, commercial and industrial customers last December.  In addition to monthly information in our billing statements, our customers can also gain access to their usage data over the most recent 24-hour period on our web site.  They also see the time blocks their usage occurred in (see figure 3).  If they don't have a computer, they can call our customer access center and talk to a representative who will review the information with them.  The customer now has the usage information and the time blocks in which their usage occurred and the price of electricity in each of those time periods.  They can now make decisions about how much energy they are using and when they want to use it.  The next day they can look and see the impact of their choices (see figure 4).

.                  Figure 4.

          Customer acceptance and use of this information has been exceptional.  In a recently conducted survey of customers who have been receiving usage information from the program we call Personal Energy Management (PEMT), we were gratified to see that 91% of residential customers and 72% of business customers were aware of our information program (see figure 5), and that the most important things they learned were 1) the need to conserve energy, 2) how they used energy by time-of-day, 3) the need to shift to off peak energy usage, and 4) how to save and shift their energy usage (see figure 6).  The survey also showed that 79% of residential customers and 70% of business customers had taken actions to alter their energy use (see figure 7), and finally that as a result of the information they received about their usage 43% of residential customers shifted when they used electricity, and 41% reduced their usage.  For business customers 4% shifted their usage while 45% reduced what they used (see figure 8).  These are truly outstanding results for an information program.

On April 25^th of this year, the Washington Utilities and Transportation Commission (WUTC) approved our filing to move from information only to pricing electricity according to the time during which it is used, so called time-of-use pricing.  This is a pilot program for 300,000 of our residential customers, and it is an important first step in providing customers with the information they need to manage their energy use and their electric bill.  We are now working on a filing we plan to make later this summer that will bring this program to all classes of our customers and move us another step closer to real-time electricity pricing.

As you can see, we are very proud of our Personal Energy ManagementT program.  On June 5, 2001 PSE received the Edison Award from the Edison Electric Institute (EEI).  This award is presented annually by EEI to the utility that demonstrates leadership and innovation in contributing to the advancement of the electricity industry for the benefit of all.  We earned this award in recognition of our Personal Energy ManagementT program, a program that brings real-time electricity pricing capabilities to our customers.

As a matter of national energy policy, all customers need to have the ability to receive real-time information about their usage and the price of electricity.  The emphasis to date has been on large commercial and industrial customers, while the McKinsey analysis shows that over half of the annual avoided costs are in the residential area.

          The integration and development of the systems needed to provide real-time electricity pricing for PSE customers demonstrates that the technology is available now.  Our survey results show its value to customers.  We have the means to achieve $15 billion in annual avoided cost savings and in so doing, reduce the cost of electricity to customers, ensure that we are using the resources we have as efficiently as possible, and only build the new resources that are necessary.

          What is preventing a national deployment of real-time pricing?

          We believe one of the issues for a utility is the up-front capital cost of installing new metering technology.  For this reason, we strongly support and urge this Congress to pass a bill introduced by Congresswoman Jennifer Dunn - HR 1797, the "Energy Efficiency and Conservation Incentives Act of 2001."  If passed, this bill would provide utilities with a tax deduction for either retrofitting or installing new real-time metering systems for their customers.  We believe this bill will provide utilities with the financial incentive they need to deploy a real-time pricing on a much greater scale.

          In conclusion, I have submitted written copies with my testimony as well as a copy of the McKinsey white paper I referenced in my remarks.  Again, I appreciate the opportunity to address the subcommittee, and I would be happy to answer any questions you may have.

Attachment (White paper - McKinsey & Co.)                                                              06/21/01