Customer risk from real-time retail electricity pricing
Subtitle: bill volatility and hedgability
By: Severin Borenstein
Contributors: National Bureau of Economic Research
Series: NBER working paper series -- working paper 12524; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 12524.
Publisher: National Bureau of Economic Research
Published: 2006
Place of publication: Cambridge, MA
Language: eng
Format: [electronic resource] :
Description: "One of the most critical concerns that customers have voiced in the debate over real-time retail electricity pricing is that they would be exposed to risk from fluctuations in their electricity cost.  The concern seems to be that a customer could find itself consuming a large quantity of power on the day that prices skyrocket and thus receive a monthly bill far larger than it had budgeted for.  I analyze the magnitude of this risk, using demand data from 1142 large industrial customers, and then ask how much of this risk can be eliminated through various straightforward financial instruments.  I find that very simple hedging strategies can eliminate more than 80% of the bill volatility that would otherwise occur.  Far from being complex, mystifying financial instruments that only a Wall Street analyst could love, these are simple forward power purchase contracts, and are already offered to retail customers by a number of fully-regulated utilities that operate real-time pricing programs.  I then show that a slightly more sophisticated application of these forward power purchases can significantly enhance their effect on reducing bill volatility"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 10/12/2006.

Includes bibliographical references.

Also available in print.

System requirements: Adobe Acrobat Reader.

Mode of access: World Wide Web.