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Customers Interrupted

Utilities that are short on capacity and operate in a stable regulatory environment may be able to extract value from interruptible rates.
Fortnightly Magazine - October 1 2003

Rider is to provide customers the means to reduce their energy costs by bidding their ability to change their electricity demand characteristics. The generic name for this type of offering is demand bidding. The demand bidding approach offers customers a proactive role in energy markets and provides a greater ability to affect the price of electricity. Customers are offered price signals to reduce demand in return for a share of the benefits derived from that reduction. The result is that customers have the ability to trade their demand response capability and still have flexibility.

Another market based approach is real-time pricing (RTP). In May of 2000, a Retail Services Report article noted that "NERC suggest many users may be willing to absorb more price uncertainty, and even more supply uncertainty, in exchange for lower overall rates." A two-part RTP rate allows a portion of customers' load to be protected from price volatility while offering customers the opportunity to save money. In a two-part RTP rate, customers are refunded/charged at markets prices for deviations to their baseline.

A drawback to the market approach is that depressed energy markets result in fewer opportunities for reducing demand while a regulated utility may be adding supply-side capacity to meet its resource needs. If designed and priced appropriately, an interruptible rate could reduce the amount of new supply-side resources needed and move interruptible resources from one of the last resources in the dispatch stack to a fully competitive alternative to supply. Along with demand bidding and real-time pricing, the proposed method has a "pay for performance" component. -M.W.

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