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Real-Time Pricing: Paying at the Margin

Fortnightly Magazine - November 1 1996

for example.

An energy manager might use some of these same approaches to minimize energy costs for a group of buildings or facilities (em perhaps by scheduling production in different plants at

various times, while weighing time-specific electricity costs at each location, as well as transportation costs. An oil pipeline, for example, could dispatch its pumping stations in different utility territories to minimize cost. A producer of industrial gases could plan production in the same manner.

However, the flexibility and innovation implied by these techniques comes at the expense of a demand for increased vigilance, knowledge, and computational skills on the part of the facility operator. Computer-assisted tools can help fill that gap, allowing operators to inventory loads and assess control strategies, as well as perform the necessary numerical computations. In all likelihood, as RTP proliferates, energy infrastructure equipment more and more will arrive equipped with intelligent control systems that can incorporate electric price changes in their operation.

The Residential Class: Enough Load to Matter?

Undoubtedly, some customers may receive little benefit from RTP, or find such pricing burdensome. They may even constitute a significant market. Other customers may prove willing to "play the market," but only if they are guaranteed some level of price certainty.

Energy service companies might well serve such markets by offering consumers a range of packaging options that enable them to choose the level of price volatility (or supply interruptibility) that best fits their needs. TOU rates will likely become more refined: In general, on-to offpeak price spreads will increase; the onpeak period will be defined more precisely; critical days for the utility will be specially priced.

Improved technology in telecommunications and metering is already expanding the market to which RTP can be offered cost-effectively. Home management

systems will soon include energy management under RTP along with other functions such as security, video (TV), voice (telephone), and data (Internet, electronic payment). To provide such services, a number of electric utilities (e.g., Pacific Gas & Electric, Public Service Electric & Gas, Florida Power, Entergy, CSW, Detroit Edison, Wisconsin Electric, American Electric Power, and UtiliCorp) have entered into joint ventures with telecommunications firms (e.g., TCI Cablevision, Microsoft, AT&T, IBM, BellSouth, Ameritech). Residential customers (or their energy service providers) may well take advantage of RTP within the next decade. t

Scott L. Englander is a senior analyst with Tabors Caramanis & Associates, an energy consulting firm with offices in Cambridge, MA, and Davis, CA. John E. Flory is principal-in-charge of TCA's Davis office. Leslie K. Norford is a principal of TCA and associate professor at the Massachusetts Institute of Technology. Richard Tabors is president and founder of TCA, and senior research engineer and senior lecturer at MIT. Tabors Caramanis & Associates has conducted real-time marginal pricing studies for more than 20 U.S. utilities, and has developed software to help customers take advantage of RTP.

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