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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

corresponding cost to U.S. businesses ranges between $104 billion and $164 billion. 2

In another study, several researchers quantified the benefits of RTP to California by conducting a counterfactual experiment (see Figure 2). 3 They showed what would have occurred in the year 2000 had the state implemented RTP. The study assumed that all customers above 200 kW load were eligible for RTP, and assessed impacts under three scenarios of customer participation, ranging from 25 percent to 50 percent to 100 percent. Figure 2 shows what would have occurred if customers had displayed a moderate amount of price responsiveness: half of them would have displayed no price responsiveness, and the other half would have displayed a degree of responsiveness consistent with experience elsewhere in the United States and the United Kingdom. If all customers had chosen to participate, peak demand would have fallen by 2.8 percent, peak prices by 20.4 percent, and seasonal electricity costs by 6 percent.

Even higher results would be obtained if customers had displayed a greater degree of price responsiveness. To quantify these benefits, the study examined another scenario in which two-thirds of all customers displayed a degree of price responsiveness equal to the average responsiveness that has been observed in other utilities, and the other third of them displayed a greater degree of price responsiveness than has been observed with customers who are equipped with enabling technologies such as self-generation. If all customers participated in RTP in this scenario, peak demand would have fallen by 6.9 percent, peak hourly prices by 56 percent, and seasonal electricity costs by 13.2 percent.

While examining the effects of RTP in the Carolinas, Tom Taylor of Duke Power and researchers at the University of North Carolina have found that RTP has induced load reductions of about 70 MW, which translates into a long-term savings of some $2.7 million per year. 4 In a similar vein, MIT Professor Schweppe's definitive work demonstrated the economic efficiency that would result from RTP. 5 Schweppe and his co-authors conjectured that if the various "publics" involved in RTP could be convinced of its many benefits, implementation would flow automatically. California's inability to implement RTP in the summer of 2001 shows that, in the real world, implementation never can be expected to flow automatically.

Lack of interval metering traditionally had been considered the biggest barrier to implementing RTP. To overcome this barrier, the California Assembly passed a bill, AB 29X, allocating $35 million for installation of real-time meters on the premises of all customers with a demand in excess of 200 kW. About 15,600 real-time meters were expected to be installed or upgraded by June 2002, affecting approximately 30 percent of peak demand in the state. 6 This should have paved the way for implementation of RTP, but it did not.

The California Energy Commission (CEC) filed an RTP tariff with the California Public Utilities Commission (CPUC) in June 2001. 7 This tariff was modeled after Georgia Power's approach. Georgia Power runs what may be the world's largest and most successful RTP program. Using a two-part design,