[BETA] Fortnightly

HOW DO CUSTOMERS RESPOND TO REAL-TIME PRICING?

Even when the customer is a commercial or industrial organization, the answer can prove illusive.

Real-life responses to RTP depend on the entirety of the incentive and monitoring systems, group dynamics and individual personalities. Managers within an organization respond to RTP signals based on information and incentives that only they can know and comprehend. Only people employed by the organization are privy to these intangibles, which remain highly idiosyncratic within any organization. As a result, any analysis of RTP responses can never rise above the preliminary or the suggestive.

The ability to self-generate to provide stand-by or backup power allows a customer to shift load off the system when prices exceed the costs of self-generation. In addition, the product lines produced by a customer, the industrial processes used, and the desire or need for employee and customer comfort are important considerations affecting individual responses. Incentives for cost-saving and the sanctions for violating company guidelines may be decisive in assessing the ability to respond to RTP signals. Moreover, the specific conditions that vary from one hour to another during the day, such as temperature and climate conditions, are more important in some organizations than in others. Only the employees know how to respond optimally on a real-time basis.

As a conceptual framework, a responsive customer is both able and willing to increase, shift or shed load. Increasing load during off-peak periods, and shifting load from peak to off-peak periods, obviously benefits the supplier since a larger or equal load is taken during a period when costs are lower. The only proviso is that the contribution during the off-peak period equals or exceeds the contribution on peak.

Load Controls: Manual vs. Automatic

Typical RTP customers are large industrial firms with at least 1 megawatt of non-coincidental demand. Overall, the larger the customer's load, and the more flexible its production and process scheduling, the greater its ability to reduce or shift usage from system peak to off-peak periods when provided with proper incentives.

A response to RTP prices can be accomplished manually or through automation. A manual response involves an employee or group of employees who physically turn equipment and fixtures on and off. An automated response involves little or no physical activity, since electronic devices turn the equipment on and off. This response allows computers to talk to other computers programmed to respond to predesignated signals.

While automated response measures require more equipment and capital expenditures, management avoids many principal-agent problems involved in administering the programs and monitoring the actions of those who carry out the manual response measures. Manual response measures require less capital but more administrative effort.

A responsive customer is able and willing to:

Increase load during off-peak periods. Super-cooling and heating are among the primary ways commercial customers respond to RTP price signals, but they are constrained by a desire to maintain levels of comfort and avoid a degraded environment. Moreover, commercial customers do not demand large incremental loads despite how low the price of electricity may become. And in response to high