Professor Mark T. Williams goes in depth on the TXU leveraged buyout.
Innovative Rates: Four Customers, Four Solutions
customer charge covers metering and administration costs; otherwise, the rate relates essentially to energy use. Hourly marginal energy costs are forecast by the system control center on a day-ahead basis. These costs, when adjusted for losses, form the variable energy component of the RTP rate.
The second component of the energy rate, the fixed adder, was to be set at the start of the rate year and designed so that if all customers in a class were billed at the RTP rate, the revenue recovered would be the same as under TOU rates. The fixed adder was designed to vary seasonally, taking into account the contribution that each season's load makes to the overall system capacity requirement. It essentially applies just in the peak periods: 50 percent in the winter (December, January, and February); 25 percent in the summer (June, July, and August), and 12.5 percent in the spring and fall. Costs for transformation, distribution, and customer administration are collected over all hours of the year, resulting in a small adder in the offpeak period.
Each day by 3:00 p.m., the customer receives a fax of the 24 hourly rates applicable for the next day. In addition, for planning purposes, the customer is sent a week-ahead forecast of expected costs.
RTP provides Customer B with a service that better matches its needs. The varying price has allowed Customer B to optimize production costs with changing market conditions. The elimination of the monthly demand charge in favor of an all-energy rate has given Customer B the flexibility to be more responsive to its own customer needs. Under RTP rates, the plant is economical to operate in the spring and fall peak periods, and more economical in the offpeak periods of all seasons. It now operates three-fourths of the year, producing more product to reduce the impact of fixed costs. As a result, the plant has remained open and the utility has maintained revenues while reducing average
energy-supply costs and improving load factor.
Trading Reliability for Lower Price
Customer C, a pulp and paper manufacturer, needed low-cost power in the peak period and was willing to trade off reliability for the lower price:
s Customer C employs mechanical pulping equipment that makes intensive use of electricity, but is energy-efficient overall. Under TOU rates, it is economical to run this equipment only during the offpeak period when there is no demand charge.
s Customer C operates its own generating facilities, which meet roughly half of its electricity requirement.
s Customer C was frustrated that the utility was levying high monthly demand charges when it had an excess of generation on the system. There were no rates in place that based demand prices on short-term capacity requirements.
s If lower-cost electricity were available, the customer would operate the mechanical pulping equipment during the peak period, thus increasing market share, and would back off its own generation and purchase from the utility when economical.
One approach to providing peak-period power without a demand charge was to make the power available only when the utility was