The Role of Demand Response in Default Service Pricing

The Role of Demand Response in Default Service Pricing

TitleThe Role of Demand Response in Default Service Pricing
Publication TypeJournal Article
Year of Publication2006
AuthorsGalen L Barbose, Charles A Goldman, Bernard Neenan
JournalThe Electricity Journal
Volume19
18-29
Issue3
Pagination16
Date Published02/2006
Keywordselectricity markets and policy group, energy analysis and environmental impacts department
Abstract

Dynamic retail 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 has been an afterthought, and in some cases not given any weight at all. 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 the end of their transitional period, and several have adopted or are actively considering an RTP-type default service for large commercial and industrial (C&I) customers. In most cases, the primary reason for adopting RTP as the default service has been to advance policy objectives related to the development of competitive retail markets. However, if attention is paid 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 article, which draws from a lengthier report, describes experience to date with RTP as a default service, focusing on its role as an instrument for cultivating price responsive demand. As of summer 2005, default service RTP was in place or approved for future implementation in five U.S. states: New Jersey, Maryland, Pennsylvania, New York, and Illinois. For each of these states, we conducted a detailed review of the regulatory proceedings leading to adoption of default RTP and interviewed regulatory staff and utilities in these states, as well as eight competitive retail suppliers active in these markets.

DOI10.1016/j.tej.2006.03.002
LBNL Report Number

LBNL-59737

Refereed DesignationUnknown