Achieving the smart grid’s potential requires a revolution in electricity pricing. Smart metering and smart rates might yield surprising and beneficial changes in the U.S. utility industry. But...
The Barriers to Real-Time Pricing: Separating Fact From Fiction
- production processes, such as municipal water pumping and cement production; and
- customers who have previously been on interruptible rates, such as universities.
- A variety of customers can respond to prices.
Customers with the incentive to shift load can find innovative ways to do so. Therefore, RTP programs should not exclude customers simply because they are not in the groups most likely to respond to prices. Price responsive customers at one utility include office buildings and grocery stores. Another utility has a price responsive hospital that changes its chiller use in response to hourly prices.
- Customers join RTP to save money.
Customers join real-time pricing programs to save money. While it may seem obvious that customers with a choice of rates would choose the one in their best interest, it is also true that customers joining an RTP program have certain expectations about the rate-producing savings. This appears to be true even for customers who do not plan to shift load significantly in response to price variation. Thus, when the overall level of RTP prices (not just the price volatility) increases, customer satisfaction with the program decreases. In some cases, customers return to embedded cost-based rates in response to higher overall prices. For example, all of BC Hydro's customers dropped off its RTP program within a year after market prices increased. 10
This finding also holds true for residential customers. Electricit‚ de France (EdF) has had over 120,000 residential customers on a simplified RTP rate called Tempo since 1996. Its surveys show that customers join the rate, and are satisfied with it, because of bill savings. EdF has spent a significant amount of time finding customers "suitable" to the rate-e.g., those with the ability to shift and save money and to whom EdF can offer peak reductions. 11 The program features two daily pricing periods, on-peak and off-peak. It also features day-of-the-year pricing. The year is divided into three types of days. The blue days are the most numerous (300) and least expensive; the white days are the next most numerous (43) and mid-range in price; and the red days are the least numerous (22) and the most expensive. 12
EdF does not offer a fixed calendar of days, but customers can know what color will take effect the next day by checking a variety of different sources:
- consulting the Tempo Web site, www.tempo.tm.fr,
- subscribing to an email service that alerts them of the colors to come,
- using Minitel (a data terminal particular to France, sometimes called a primitive form of Internet),
- using a vocal system over the telephone, or
- checking an electrical device (Compteur Electronique) provided by EdF that can be plugged into any electrical socket.
Commercial and industrial customers at PG&E, Southern California Edison, Virginia Electric Power Company (Vepco), and Niagara Mohawk also indicated that bill savings, as well as the related "control over costs," are a major reason for joining RTP programs.13
While not as well documented, the implication that RTP programs have "free riders" that join to save money is a serious issue. One utility has a one-part