Ahmad Faruqui, Charles River Associates, Oakland, CA:
What do you see as the role of innovative rate design and
advanced metering in improving the economic efficiency of our
energy system? In most markets today, whether restructured or
not, consumers do not receive accurate price signals that reflect
the time-varying costs of electricity. This is due, in part,
due to the inability of the installed meters to convey such
price information to retail customers, and in part to the reluctance
of regulatory agencies to send such price signals through to
the retail customer.
Paul Craig: Great point, and right on! Accurate time-of-use
price signals are an important way to achieve efficiency. The
electrical sector is a first-rate candidate, but roads and bridges
are also. Rates should reflect full costs, among them environmental,
social and military security costs. Time-of-use electricity
metering permits paying producers what their electricity is
worth at the moment, and charging consumers based on how much
it costs to generate the electricity at any instant.
Time-of-use metering is on its way. It's beginning with the
largest users. I expect it will soon start to appear throughout
the economy as metering costs come down and as smart appliances
appear with the ability to run automatically when power is cheap.
Refrigerators that make ice and defrost in the middle of the
night; clothes washers and dryers with the capability of deciding
when to run (and which don't wrinkle), and clever heating and
cooling systems. Regulatory agencies are a bit slow in coming
around, but I believe they will. If carefully implemented, time
of use pricing and billing is good for the environment and good
for the economy.
David Freeman: We see a very large and growing role
for real time pricing in California. The state has already purchased
and installed real time meters for larger customers. The California
Power Authority is financing real-time meters for smaller customers.
And the CPUC and CEC are actively working together to advance
rate-designs to reflect real time pricing.
Kurt Yeager: We also agree. Power costs vary with demand,
and are typically highest on hot summer afternoons when air
conditioning use is at a peak. With extreme weather, especially
combined with outages of generating capacity, power costs can
soar to astronomical levels. Yet typically, consumer prices
for power remain unchanged at an average fixed rate. EPRI studies
have shown that a small amount of conservation during extreme
cost periods can have a disproportionately large impact in reducing
costs. One effective way to get that conservation, when it's
needed, is to pass the high costs on to the consumer using dynamic
rates that are much higher than normal during critical days
or time periods, yet are lower than the average the rest of
the time. Customers who conserve during the extreme periods
save money on their own bills, but there's the added benefit
that their conservation reduces the costs for everyone.
Advanced meters make these efficiency savings from innovative
rate designs possible, but the meters have other benefits. First,
they enable real customer choice, not just of supplier but when
and how much energy to buy, ultimately through smart appliances
programmed to meet each individual's customers needs and priorities.
Second, because these meters can be read electronically, they
also save the cost and transportation energy of going door to
door to read them manually. It's hard to imagine that our grandchildren
will be reading meters manually in 2050.
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