Study Examines Performance of Utility Real Time Pricing Programs

CERTS Contact: Allan Chen, (510) 486-4210;
Technical Contact: Charles Goldman, (510) 486-4637;
Galen Barbose, (510) 495-2593;

Berkeley, California—Researchers have published a comprehensive review of voluntary real time pricing (RTP) programs offered by electric utilities across the nation. According to the report, experience with RTP programs has been mixed. Several utilities have demonstrated that voluntary RTP programs are capable of generating significant load reductions. However, most programs have attracted relatively few participants and have achieved relatively modest load reductions. Utilities and regulators that are considering voluntary RTP as a strategy for developing price responsive load may therefore need to undertake concerted efforts to build customer awareness and acceptance of RTP, if such programs are to have a meaningful impact on electricity market performance or utility resource planning.

The study, "A Survey of Utility Experience with Real Time Pricing" was coordinated by the Consortium for Electric Reliability Technology Solutions (CERTS) and funded by the U.S. Department of Energy Office of Electric Transmission and Distribution. It was conducted by Galen Barbose and Charles Goldman of the Lawrence Berkeley National Laboratory, and Bernie Neenan of Neenan Associates.

With real time pricing, utilities charge electricity customers prices that vary over short time intervals, typically hourly, and are quoted one day or less in advance. RTP provides retail electricity customers with an incentive to reduce their demand when the wholesale price of power rises. "RTP has experienced a recent resurgence of interest among economists and policymakers who recognize its potential for mitigating generators' market power, dampening price volatility, and reducing the need for additional generation capacity," explains Goldman. "We undertook the study to better understand how well voluntary RTP programs have actually performed across a broad range of regulatory and market settings."

Key Findings on RTP Program Performance

Based on their interviews with utility program managers of 43 voluntary RTP programs offered in 2003, the researchers identified a series of key findings related to the performance of voluntary RTP programs.

Although several programs have attracted a significant level of participation, most have not. Nationwide, approximately 2,700 non-residential customers were enrolled in voluntary RTP programs in 2003, representing more than 11,000 MW of load. However, most of these RTP participants are associated with a small number of programs. Only three RTP programs reportedly had more than 100 non-residential customers or more than 500 megawatts (MW) enrolled; these programs accounted for about 80% of all non-residential RTP customers. One-third of the programs had no participants in 2003, and another third had less than 25 customers enrolled. Limited participation in RTP can be partly attributed to the fact that most programs have not been pro-actively marketed or have been targeted to a narrow population of customers.
RTP programs have reportedly achieved maximum load reductions of 12 to 33 percent of program participants' combined load. Among eight programs with more than 20 participants, six programs have generated maximum load reductions in the range of 12 to 22 percent of participants' combined non-coincident peak demand, while the other two programs have achieved load reductions of about 33 percent. These maximum load reductions occurred across a wide range of hourly prices, from $0.12/kWh to $6.50/kWh, although programs that have seen higher prices have not necessarily generated higher percentage load reductions. In most cases, the absolute magnitude of the load reductions was relatively small: only two programs have generated load reductions greater than 100 MW, out of the 10 programs for which an estimate was provided.

Policy Options to Increase RTP Program Effectiveness

"Several utilities have shown that voluntary RTP programs can attract enough participants to create a significant level of price responsive demand," notes Goldman. "However, the fact that most programs have had a much more modest impact suggests that policymakers interested in voluntary RTP as a strategy for developing price responsive demand will need to address a number of challenges." The researchers make several specific recommendations:

Devote sufficient resources to developing and implementing a customer education program. Customers are unlikely to gravitate in large numbers toward RTP on their own accord, in part because RTP is quite different from conventional electricity services. To enlist a sufficient number of participants, customers must be made aware of the program and its terms, be able to compare their electricity bills under their standard tariff and the RTP rate, and, most importantly, understand what opportunities they have to shift and curtail discretionary loads.
Help customers understand and manage price risk. Participation in RTP could potentially be improved if customers were offered technical assistance and training to help them understand market price formation and identify physical and financial strategies for managing price risk. In some cases, financial incentives to accelerate the adoption of technologies that simplify and/or automate price response may also be warranted.
The costs and benefits of obtaining incremental amounts of price-responsive load from RTP must be weighed against those of other demand response strategies. RTP is just one of several approaches to creating price responsive demand. If a substantial amount of resources are required to entice the desired number of customers to join RTP, policymakers should weigh the costs of these inducements and the incremental benefits against those of implementing alternative price response mechanisms. Given the diversity and heterogeneity of retail customers, a portfolio of RTP and other demand response programs may be more likely to achieve meaningful levels of price responsive load than RTP, alone.

Download the report at: http://eetd.lbl.gov/ea/emp/

The Consortium for Electric Reliability Technology Solutions was formed in 1999 to research, develop, and disseminate new methods, tools, and technologies to protect and enhance the reliability of the U.S. electric power system in the transition to a competitive electricity market structure. For more information, visit http://certs.lbl.gov/.