Real Time Pricing as a Default or Optional Service for C&I Customers: A Comparative Analysis of Eight Case Studies

Demand response (DR) is broadly recognized to be an integral component of well-functioning electricity markets, but currently underdeveloped in most regions. In recent years, there has been renewed interest among a number of public utility commissions (PUC) and utilities in implementing real-time pricing (RTP), typically for large commercial and industrial (C&I) customers, as a strategy for developing greater levels of DR. Such efforts typically face a set of key policy and program design issues, including:

• How to organize the process for developing and implementing RTP in a manner that facilitates productive participation by the relevant stakeholder groups;
• Whether to designate RTP as an optional or default service, and for which customer classes;
• What type of tariff design to adopt given prevailing policy objectives, wholesale market structure, ratemaking practices and standards, and customer preferences; and
• What types of supplemental activities (e.g., customer education, deployment of enabling technologies) are appropriate to facilitate customer participation and price response.

Given resolution of these design and implementation issues, a key question for policymakers is how much DR can ultimately be expected from RTP, which requires analyzing customers' willingness to be exposed to dynamic hourly prices over a sustained time period and their actual price responsiveness. State agencies, utilities, and customer groups in California have been engaged in an ongoing process to develop retail mechanisms for DR, including consideration of utility RTP tariffs. To provide information to policymakers and stakeholders in California and other jurisdictions, we conducted a comparative review of eight case study states where RTP has been implemented as a default and/or optional service for commercial and industrial (C&I) customers. Each state has established some form of retail competition, although there are significant differences in regulatory and market environments.