CALIFORNIA ENERGY COMMISSION

California Perspective on Real Time Pricing Michael R. Jaske, Ph.D. California Energy Commission Committee on Regional Electric Power Cooperation April 18, 2001

CALIFORNIA ENERGY COMMISSION What is Real Time Pricing? a. Any rate design in which retail prices vary by hour of the day for different days of the week. b. Generally RTP designs compute retail prices in an hour based on wholesale market prices at that hour. c. RTP requires: (1) interval meters synched with time; (2) telecommunications to upload/download usage data; (3) rate designs affecting total electricity bill.

CALIFORNIA ENERGY COMMISSION TOU rates have prespecified values for groups of hours that are thought to have similar costs of generation. TOU meters do not keep a chronological record of usage,but merely accumulate usage into 3-4 “buckets” of hours. There is no necessary correlation between TOU rates and wholesale market prices. How does RTP differ from TOU rates?

CALIFORNIA ENERGY COMMISSION RTP rates are superior to TOU rates in conveying actual market prices to end-users; RTP rates elicit responses from end-users when market prices are actually high or low, not when regulators believe prices ought to be high or low. RTP rates are much superior to TOU rates in providing demand responsiveness as a counter force to generator market What are the key benefits of RTP?

CALIFORNIA ENERGY COMMISSION What are the costs of RTP? Development of an RTP signal that is representative of purchases at the margin; Metering and telecommunication installations at many end-user sites; Modifications to billing systems to accommodate massive increases in usage data; Loss of certainty in rate structures.

CALIFORNIA ENERGY COMMISSION How do proposed TOU rates compare to RTP? The 3/26/2001 Assigned Commissioner Ruling in the Rate Stabilization proceeding proposed very large increases in TOU on peak rates, e.g., increasing from $0.06 to $0.36/kW. (1) Implication: massive cost increases for peak summer use or major disruption to traditional business activities; (2) Compared to market prices, $0.36/kWh probably too high in many lower demand hours, e.g., a cool June afternoon; (3) Compared to market prices, $0.36/kWh is probably too low to fully recover market costs in highly stressed hours. An RTP based on market prices would revise these retail rates so that they were based on supply/demand conditions pertinent to that hour driving imbalance energy prices.

CALIFORNIA ENERGY COMMISSION How can retail rates include RTP? Set retail rates for commodity energy equal to wholesale market prices and separate charges can recover costs of transmission,distribution and other utility costs; Blend RTP retail rates based on spot market purchases and regulated costs of utility-owned power plants and long run contract purchases; Retail rates can be the rate for marginal changes in consumption relative to a historic baseline usage pattern, e.g., the Georgia Power RTP approach.

CALIFORNIA ENERGY COMMISSION What is California doing with respect to RTP? AB29X provides $35 million to the CEC for RTP equipment installation for all end-users > 200 kW; In current CPUC Rate Stabilization proceeding, several parties advocated RTP as element of market structure; CEC recommended in rate design testimony to CPUC on 4/13/2001, that RTP be endorsed as a policy with implementation in phases, and proposed that a Georgia Power-style RTP supplement be available to any end-user with appropriate metering equipment; CAISO began releasing day imbalance energy costs on 2/12/2001, and wants to generate and publish imbalance costs on an hourly basis as an RTP price signal.

CALIFORNIA ENERGY COMMISSION Why should Western States be interested in RTP? Many utilities in western states are “net short” meaning their own utility-owned and controlled generation is less than their loads. All such utilities and/or their customers are exposed to short term market prices. Even “net long” states can be vulnerable to short supply if they have merchant plants that can sell elsewhere To the extent each utility is exposed to Western short term market prices, all such utilities and/or their customers benefit when any utility using RTP principles cause market clearing prices to decline.

CALIFORNIA ENERGY COMMISSION California Perspective on Real Time Pricing Michael R. Jaske, Ph.D. California Energy Commission Committee on Regional Electric Power Cooperation April 18, 2001

CALIFORNIA ENERGY COMMISSION