The Role of Demand Response in Default Service Pricing

Conference · Fri Mar 10 04:00:00 EST 2006

OSTI ID:889326

Barbose, Galen; Goldman, Chuck; Neenan, Bernie

Dynamic retail electricity pricing, especially real-time pricing (RTP), has been widely heralded as a panacea for providing much-needed demand response in electricity markets. However, in designing default service for competitive retail markets, demand response often appears to be an afterthought. But that may be changing as states that initiated customer choice in the past 5-7 years reach an important juncture in retail market design. Most states with retail choice established an initial transitional period, during which utilities were required to offer a default or ''standard offer'' generation service, often at a capped or otherwise administratively-determined rate. Many retail choice states have reached, or are nearing, the end of their transitional period and several states have adopted an RTP-type default service for large commercial and industrial (C&I) customers. Are these initiatives motivated by the desire to induce greater demand response, or is RTP being called upon to serve a different role in competitive markets? Surprisingly, we found that in most cases, the primary reason for adopting RTP as the default service was not to encourage demand response, but rather to advance policy objectives related to the development of competitive retail markets. However, we also find that, if efforts are made in its design and implementation, default RTP service can also provide a solid foundation for developing price responsive demand, creating an important link between wholesale and retail market transactions. This paper, which draws from a lengthier report, describes the experience to date with default RTP in the U.S., identifying findings related to its actual and potential role as an instrument for cultivating price responsive demand [1]. For each of the five states currently with default RTP, we conducted a detailed review of the regulatory proceedings leading to its adoption. To further understand the intentions and expectations of those involved in its design and implementation, we also interviewed regulatory staff and utilities in each state, as well as eight of the most prominent competitive retail suppliers operating in these markets which, together, comprised about 60-65% of competitive C&I sales in the U.S. in 2004 [2].

• Research Organization: Ernest Orlando Lawrence Berkeley NationalLaboratory, Berkeley, CA (US)
• Sponsoring Organization: USDOE. Office of Electricity Delivery and EnergyReliability; California Energy Commission
• DOE Contract Number: AC02-05CH11231
• OSTI ID: 889326
• Report Number(s): LBNL--59737; BnR: TD5211000
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING, POLICY, AND ECONOMY
32 ENERGY CONSERVATION, CONSUMPTION, AND UTILIZATION
DESIGN
ELECTRICITY
IMPLEMENTATION
MARKET
PRICES
SALES