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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

evidence from other states that customers have gamed the selection of their CBLs. If so, can better educational programs offset this problem?

A third issue deals with billing and settlement systems. Most existing systems are not capable of calculating bills based on hourly usage patterns. Modifications must be made by the IT staff, which often is overburdened with other duties. The only practical solution is to outsource this capability, and that often comes with a large price tag. It would be useful to research the cost of implementing billing and settlement systems that would enable RTP, and how these costs can be managed most effectively.

A fourth issue relates to the lack of integration of demand-side responses with system dispatch. Oftentimes, utilities are skeptical that the pricing program will produce real and tangible savings that they can count on. Some have more confidence in traditional load management programs involving direct load control of specific appliances. This concern is not limited to the United States. For example, ESKOM, the state-owned utility in South Africa, has 1,400 MW on RTP with a simultaneous load response capability of 350-400 MW for up to three consecutive hours. While RTP is set up on a day-ahead basis, customer response is not used to optimize the dispatch of the power system. Electricity prices are based on the Pool Output Price, and do not change in response to changes in customer demand that may be induced by RTP. The utility is not aggressively marketing the program for this reason. It hopes that once a competitive energy market has been created, with a functioning Power Exchange, RTP then will be able to play its proper role in system operations 3

Fifth, there is a perception that RTP makes sense only during periods of wholesale price spikes. Thus, if wholesale prices are low (as they have been during the past year in the western states), RTP is not needed. What is often overlooked is that wholesale prices were high not too long ago, and that the sequential existence of low and high prices implies high price volatility. Customers who sign up for RTP will benefit when prices are low, and the existence of low prices during several hours of the year can be an inducement to participation in RTP. When a utility has a large number of customers on RTP, it creates flexibility for itself during high-price periods, when it can transmit a high-price signal to the customers and get customers to cut back on usage.

Finally, there is a perception that customers will not like RTP and will complain to the public utility commission. Utilities are concerned they may be trading off customer satisfaction for some questionable efficiency gains. Many cite the consumer revolt that was triggered in San Diego when electric bills doubled and tripled during the summer of 2000. However, it would be incorrect to regard the San Diego experience as a fair test of RTP. Customers were neither educated nor prepared for a doubling or tripling of their bills. Their prices did not vary hourly, as they

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