Handbook of air conditioning and refrigeration / Shan K

California Approach
Real-Time Pricing
phase of electric deregulation requires direct access to retail markets based on the condition that a
competitive power market is provided.
In late 1990s, several states followed California’s lead in having legislation in place by setting a
specific date for electric deregulation, such as Arizona in 1999, California in 1998, Massachusetts
in 1998, New Hampshire in 1998, Pennsylvania in 1999, and Rhode Island in 1997.
In 1999, according to Warwick (1998), Waintroob (1998), and Gottfried (1997), the following
holds:
● States in which electric utilities are deregulating typically adopt one of the following two approaches.
The first approach is to provide electric consumers with an immediate rate cut but to retain
regulatory control over power rates for the incumbent utility. Power-supplying competitors
have to offer power below the new, discounted rates. In most states, the new rate is accompanied
by a rate freeze or cap lasting for several years. The second approach is to separate the power cost
from the old utility rate and to allow electric users to buy from alternate competitors.
● Power supply is the major electric utility service for competition under electric utility deregulation.
California established a power exchange pool which acts as a power auction house and an
independent (transmission) system operator, or ISO, which manages all power transfers and settles
all power sales accounts when utilities continue to own and maintain their transmission lines.
The experience of direct access in New Hampshire using bilateral trading allows individuals to
negotiate for the best deal they can get. Those who do well have lower-cost good-quality electricity.
Bilateral trades are contracts with receive and delivery terms. The buyer has to arrange transmission,
if the contract is for power only.
● To implement competition without involving lawsuits by incumbent electric utilities and other jurisdictions
that rely on the tax dollars generated from power plant valuations, electric utilities
were offered means to recover their stranded costs within a certain period. In California, the
state’s degeneration bill AB 1980, enacted in September 1996, calls for a nonbypassable stranded
cost surcharge of approximately 2.5 to 6 cents per kWh payable over 4-year period until 2002 by
rate payers. In 2002, California consumers will realize the benefits of deregulated rate. Stranded
cost is the cost difference between a plant cost carried on its books and the real market value.
Recently, the use of the computer and data handling software, the improvements in telecommunications,
as well as the demand for better energy management following electric deregulation have
made it possible for electric utilities to offer to customers an electric rate structure that more precisely
represents the actual cost of providing the electric service. In addition, this electric rate structure
also depends on the climate and demand; varies hourly, 24 h daily and 8760 h annually; and is
known as real-time pricing (RTP). It began in 1985 in California. Many states allowed electric utilities
to offer RTP electric rate structure to commercial and industrial customers in the late 1990s.
Other rate structures will also be available in a deregulation environment as the power providers
maneuver to offer the most competitive plans possible.
According to Bynum (1998), the components of a typical bill, in percentage, in the late 1990s
are as follows:
Cost of generation 40 percent
Transmission, local distribution, service,
profit, etc. 60 percent
ENERGY MANAGEMENT AND GLOBAL WARMING 25.15