Wealth transfer from implementing real-time retail electricity pricing
By: Severin Borenstein.
Contributors: National Bureau of Economic Research.
Series: NBER working paper series -- working paper 11594.; Working paper series (National Bureau of Economic Research) -- working paper no. 11594.
Publisher: National Bureau of Economic Research
Published: 2005
Place of publication: Cambridge, MA
Language: eng
Number of pages: 18
Subjects: Electric utilities -- Rates -- Time-of-use pricing -- California
Description: "Adoption of real-time electricity pricing--retail prices that vary hourly to reflect changing wholesale prices--removes existing cross-subsidies to those customers that consume disproportionately more when wholesale prices are highest.  If their losses are substantial, these customers are likely to oppose RTP initiatives unless there is a supplemental program to offset their loss.  Using data on a random sample of 636 industrial and commercial customers in southern California, I show that RTP adoption would result in significant transfers compared to a flat-rate tariff.  When compared to the time-of-use rates (simple peak/offpeak tariffs) that these customers already face, however, the transfers drop by nearly half; even under the more extreme price volatility scenario that I examine, 90% of customers would see changes of between a 9% bill reduction and a 14% bill increase.  Though customer price responsiveness reduces the loss incurred by those with high-cost demand profiles, I also demonstrate that this offsetting effect is unlikely to be large enough for most customers with costly demand patterns to completely offset their lost cross-subsidy.  The analysis suggests that adoption of real-time pricing may be difficult without a supplemental program that compensates the customers who are made worse off by the change.  I discuss how "two-part RTP" programs, which allow customers to purchase a baseline quantity at regulated TOU rates, can reduce the transfers associated with adoption of RTP"--National Bureau of Economic Research web site.
Notes: "August 2005."

Includes bibliographical references.

Also available in PDF from the NBER world wide web site (www.nber.org).