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Metering, Loads & Profiles: Let the Cherry-Picking Begin

Fortnightly Magazine - November 1 1997

Competing for the underappreciated electric customer.

IT MAY APPEAR ODD THAT, IN MOVING TO COMPETITION, A KEY

cost characteristic surrounding the production and consumption of non-storable electric power (em i.e., its pattern of use (em is deemed too expensive, too impracticable or unnecessary to measure. %n1%n

One problem stems from the dynamic nature of electric consumption. Electric consumers impose costs on suppliers and distributors. Current rate structures employing a demand charge are imperfect because demand is not necessarily measured at the time of system peak. Time-of-day pricing does a better job of aligning prices and cost but is more complicated and expensive. For smaller customers, demand information is not collected at all. Past utility practice, which in large part determines the current stock of in-place metering, sets rates based on group averages, not the cost imposed by individual customers. Industry outcomes that produce better price signals will improve the performance of the industry. Will load profiling-based retail choice for smaller customers provide that better price signal?

The situation differs for large-volume customers. For them, the widespread practice of interval metering for large customers allows for precise measurement of cost inposition and the potential for a better post-choice price signal. Yet for millions of smaller customers, ideal metering is not in place, leaving load profiling as the only feasible way to implement retail choice.

Why, is such a regime to be allowed to determine costs and set rates in a restructured electric industry?

Even now, several states intend to rely on statistical load profiling %n2%n to estimate the costs that smaller retail choice customers will impose on their chosen supplier. Yet those that believe competition and choice will lead to superior outcomes should also consider the potential impacts of assigning costs based on imprecise estimates rather than actual usage.

Policymakers should expect market participants to arbitrage away cross subsidies that arise from the institutional structure of the market. If load profiling creates opportunities for market participants to improve their position, then such opportunities will be exploited. The degree to which opportunities exist and the degree to which they are exploited will determine the impact on other stakeholders.

This paper explores possible effects of relying on statistical load profiles to determine the costs imposed by smaller participants %n3%n in retail choice. It examines the degree to which "cherry-picking" opportunities may exist by imposing three relatively simple strategies on existing load research data and observing the results.

The Problem With Profiling

The institutional practice of load profiling serves as a means by which a volume of usage in kilowatt-hours is transformed into a binding estimate of costs imposed by that customer on his or her electric energy supplier or load-serving entity (LSE).

One problem with load profiling is that customers cannot be rewarded for changing their pattern of use; costs and billings will vary only with the volume of power consumed, not usage patterns. Also, customers with better-than-class load characteristics will likely opt into other arrangements that will eventually increase costs for those customers remaining on rates subject to estimation. This result conflicts with the

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