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The Barriers to Real-Time Pricing: Separating Fact From Fiction

Real-time pricing has been hindered by the misperception that a shift to RTP will create new types of risks, without creating benefits for utilities or customers.
Fortnightly Magazine - July 15 2002

Georgia Power has been able to attract about 1,650 customers to RTP, representing 40 percent of the 4,100 customers larger than 250 kW. These customers represent about 5,000 MW of total load, and 80 percent of them are engaged in industrial activities. Through its RTP program, Georgia Power has been able to achieve a peak demand reduction of up to 17 percent on critical days.

The CPUC rejected the CEC's proposal in a draft decision in July 2001. The CEC revised its proposal, and submitted a simpler approach to the CPUC. The following month the CPUC rejected this approach, and directed the utility distribution companies to make their own filings. These were submitted later in August. As of this writing, the CPUC still has not ruled on these filings, but the CPUC is considering a new Order Instituting Rulemaking (OIR) on the issue.

California's experience with RTP draws attention to the very real barriers that face utilities and states seeking RTP implementation. Last August, we conducted a series of telephone interviews to assess the experience of utilities around the country with RTP. Nine important lessons emerged from our interviews.

Lessons Learned from Utility RTP Programs

RTP programs have been around for more than 15 years, and over 30 utilities have implemented some type of program, though many of these have been experimental. However, relatively few utilities have sizable RTP programs. Figure 3 lists some of the leading RTP programs. The following are lessons we have identified from our utility interviews:

  1. RTP programs can offer significant load shifting benefits, but most of the load response comes from relatively few customers.
    Customers pay attention to prices, and shift loads in response to price movements. It is not unusual to find examples of peak load shifts of 15 to 20 percent or more. However, most of the load shifting comes from a relatively small group of customers, and many customers do not shift load at all. 8 One utility found that it had roughly the same response in 2001 with 59 customers as it did in 2000 with over 100, because the non-responsive customers dropped off the rate. Another found that only three of its 14 customers have done any "significant" shifting. Some utilities found that almost no customers are shifting. Customers had to be allowed to drop off their market-based RTP program by a California utility after PX prices shot up, because customers didn't know how to shift. A Canadian utility has found that even though it has roughly 25 customers on RTP, only one ever has really shifted load, and even that customer could not sustain this shifting.
    Even among price-responsive customers, response can vary significantly over time. 9 Presumably, customers have more scheduling flexibility at certain times than at others.
  2. Certain types of customers are more likely to respond to RTP.
    The following groups of customers repeatedly have been shown to be more responsive:
    • customers with on-site generation, such as hotels and large office buildings in the commercial sector, and pulp and paper mills in the industrial sector;
    • customers with non-continuous (discrete)