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Real-Time Pricing: Chinks in the Armor

Fortnightly Magazine - May 15 1997

Regarding the Hanser, Wharton and Fox-Penner article on real-time pricing ("Real-Time Pricing (em Restructuring's Big Bang," PUBLIC UTILITIES FORTNIGHTLY, March 1, 1997, p. 22), the authors state that RTP programs will defer capacity needs and reduce peak loads. I doubt it. People don't mind paying high prices per kWh for a few hours each year. On the other hand, there is nothing like an old-fashion ratchet to get people to reduce their peak demand.

The authors clearly favor two-part RTP programs over one-part programs, stating that with the two-part program the customer is always exposed to RTP prices for its full demand, but this claim is not the case. Perhaps only a small portion of the customer's load (the increment under or over the base-year usage) is exposed to RTP.

Also, with two-part RTP pricing you can easily have two customers sitting side by side with identical load characteristics and paying different rates. One customer might be paying 7¢/kWh, while the other pays 4¢/kWh on average. The gap stems from differences in base-year usage levels. Yet that is not how these loads will be priced in a competitive environment. Marketers are not going to be interested in what a prospective customer's base years usage was. Nor would this price distortion occur under one-part RTP.

Jim Lundrigan

New Haven, CT


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