| Abstract: |
Adoption of real-time electricity pricing — retail prices that vary hourly to
reflect changing wholesale prices — removes existing cross-subsidies to those
customers that consume disproportionately more when wholesale prices are
highest. If their losses are substantial, these customers are likely to oppose
RTP initiatives unless there is a supplemental program to offset their loss.
Using data on a random sample of 636 industrial and commercial customers in
southern California, I show that RTP adoption would result in significant
transfers compared to a flat-rate tariff. When compared to the time-of-use
rates (simple peak/offpeak tariffs) that these customers already face,
however, the transfers drop by nearly half; even under the more extreme price
volatility scenario that I examine, 90% of customers would see changes of
between a 9% bill reduction and a 14% bill increase. Though customer price
responsiveness reduces the loss incurred by those with high-cost demand
profiles, I also demonstrate that this offsetting effect is unlikely to be
large enough for most customers with costly demand patterns to completely
offset their lost cross-subsidy. The analysis suggests that adoption of
real-time pricing may be difficult without a supplemental program that
compensates the customers who are made worse off by the change. I discuss how
"two-part RTP" programs, which allow customers to purchase a baseline quantity
at regulated TOU rates, can reduce the transfers associated with adoption of
RTP. |