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Special Section On Metering: Needed in New England: Stronger Market Connections, Savvier Electricity Usage

The region’s retail and wholesale electricity markets should be linked via dynamic pricing.
Fortnightly Magazine - April 2006

for such changes in behavior.

CRA International studied the impacts of California’s Statewide Pricing Pilot in 2004 and found that residential customers reduced, on average, peak period energy usage on “critical price” days by between 13 and 16 percent. 1 Customers using smart thermostats were able to reduce peak consumption by roughly 27 percent. These results are more than double the average 6 percent peak reduction from customers on traditional fixed time-of-use rates.

Lawrence Berkley National Laboratory conducted a survey of 43 voluntary real-time pricing (RTP) programs offered throughout the United States in 2003 2 and found that RTP programs have reported peak load reductions in the range of 12 to 33 percent.

Even the best designed programs will have little impact on reliability or price if the retail customer cannot see the true price for the electricity being used, or lacks the ability to control it. ISO New England’s vision is to fully integrate demand resources into the electricity markets so that retail customers can participate, and demand-response providers can feel comfortable investing in demand-response projects and technologies, knowing it will be a permanent part of the portfolio of resources in the wholesale market.

To truly advance this concept, we need stronger links between wholesale and retail electricity markets. Mechanisms for creating closer linkages between wholesale and retail market pricing include:

• Implementation of dynamic retail pricing, which varies directly with changes in wholesale spot-market energy prices;

• More sophisticated metering, communications technology, and billing systems to send more accurate price signals directly to customers in real time;

• Control technology, which adjusts customer consumption levels automatically as prices vary over the course of the day; and

• Customer education to help retail customers better understand how the markets work and their choices for managing changing price levels.

The Energy Policy Act of 2005 requires that each state regulatory commission conduct an investigation and issue an order regarding the adoption of dynamic pricing and advanced metering standards. The act further requires the Federal Energy Regulatory Commission and the Department of Energy to estimate the regional potential and national benefits of demand response.

Given that the wholesale electricity system serving the New England region is a tightly integrated network and that much of the value will accrue to the members of that network, the New England states can benefit by coordinating their investigation and implementation of dynamic pricing. This could increase overall regional participation and benefits, and reduce the costs of investigating and implementing the needed metering and billing infrastructure. The same holds true of possible inter-regional efforts between and among contiguous regions in the Northeast.

To begin this effort, ISO New England and the New England Conference of Public Utility Commissioners (NECPUC) have formed a collaborative partnership to analyze, design, and implement solutions that would capture greater price-responsive demand throughout the region. ISO New England’s immediate focus will be on conducting research that investigates the feasibility and benefits of widespread implementation of dynamic pricing on the wholesale market.

State regulators have a far more important role to play to establish the