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Biling, Blackouts, and the Obligation to Serve

Complex billing is one way to minimize the size and frequency of blackouts.
Fortnightly Magazine - June 2004

key locations. And clear, short-term price incentives permit customers to evaluate whether they are better off using their generation on-site or selling it to the grid.

Additional Benefits

Building software infrastructure to comfortably handle a variety of complex billing approaches has benefits beyond grid efficiency:

  • Complex billing helps utilities address concerns about fairness. Small and mid-size commercial and industrial customers as well as regulators have long expressed discomfort with incentive programs limited to only the largest of industrial firms. But limiting the size of participants is necessary when incentive programs for grid injection or demand reduction must be calculated individually. Complex billing automates the calculation and the underlying contracts. That enables utilities to handle large numbers of program participants. It also enlarges the size of potential demand reductions.
  • The interval data produced routinely as part of the complex billing process has multiple uses. It can help facilities identify expensive and unnecessary peaks. It can indicate malfunctioning equipment and permit repairs in advance of breakdown. It can suggest conservation measures. To facilitate these uses, utilities may offer compilation services, such as delivering formatted data to customers on CDs. Utilities can also use the data to offer analytic services that increase facility efficiency while adding to the utility's bottom line.
  • Complex billing permits regulated utilities to offer direct access to wholesale electricity markets. Such programs may ease the concerns of large customers that advocate full retail competition as a way to provide themselves with lower-cost supply options.

There's no evidence that complex billing would have prevented the August blackout. In fact, there is no silver bullet that will prevent blackouts going forward. Minimizing the size and frequency of blackouts likely will result from dozens of steps taken by hundreds of utilities over the coming months and years.

Many of those steps will, like complex billing, improve grid efficiency. And identifying those efficiencies involves far more than back-room analyses of grid structure and load profile. Efficiencies will require innovative thinking and partnerships between utilities and their customers.

Complex billing underpins that thinking. It fosters common-sense innovations that, no matter what the future holds, maximize the effective use of current resources and thus hold down the cost of service.

Endnotes

  1. They are, for instance, included as a general rule in the FERC's current standard market design proposal. See also the congressional testimony of FERC Chairman Pat Wood at http://www.ferc.gov/news/congressionaltestimony/WoodTestimony07-24-02.pdf.
  2. Customers may, of course, use price-based programs as a way to control internal costs, separate from any contributions to grid management.


Additional Complex Billing Concepts

Historically, in their simplest form, customers' energy charges have been calculated by multiplying the number of energy units used (typically expressed as a number of kilowatt-hours) by the price per unit. Using complex pricing, the energy charge is calculated by multiplying each interval by the price for that interval, then adding all of the results (products) together.

In practice, however, interval pricing is virtually never this simple. Two frequently used variations are peak-demand pricing and hedging.

Peak Demand Pricing

The ability to control peak demand does not provide utilities with the