How to account for lack of strong price signals. A hard year puts deregulation to the test.
Catherine McDonough, Ph.D. is director of regulatory compliance for National Grid’s electric distributionoperations. Email her at: email@example.com. Robert Kraus is a senior pricing analyst for National Grid. The authors acknowledge the assistance of Jeffrey Barbero, Scott Leuthauser, Wesley Yeomans, Bart Franey, Timothy Brennan, Peter Zschokke and Steve Tasker. This article reflects the opinions of the authors and not necessarily National Grid.
The overriding objective of dynamic-pricing programs is to create a financial incentive for electric customers to curb load on the grid when the electric system peaks, either by conserving energy, shifting use to off-peak periods or generating electricity on-site. Such action by customers helps enhance reliability and curb the potential for market-power abuse by generators; most important, it obviates the need to build central generation and delivery capacity to serve load that occurs in only a small number of hours. Indeed, experts believe most of the customer benefit from dynamic-pricing programs comes from avoided generation, transmission and distribution capacity costs rather than avoided energy costs.1
Some also believe that a wide-spread implementation of dynamic-pricing programs ultimately would eliminate the need for subsidized demand-response (DR) programs, in which all customers pay some customers to drop load during event hours called by the system operator during system peaks.2